Charles Taylor Consulting · of captive insurance companies, principally but not exclusively in...

Charles Taylor Consult ing plc

Annual Report and Financial Statements 2006

A36881 CTC Annual Report 30/3/07 10:34 am Page b

Contents

1 Review of the Year

1 Financial Highlights

2 Chairman’s Statement

3 Business Review

7 Board of Directors

9 Report of the Directors

11 Corporate Governance

14 Report of the Remuneration Committee

19 Statement of Directors’ Responsibilities

20 Independent Auditors’ Report

21 Financial Statements

22 Consolidated Income Statement

23 Consolidated Balance Sheet

24 Company Balance Sheet

25 Cash Flow Statements

26 Consolidated Statement of Recognised Income and Expense

27 Notes to the Financial Statements

60 Shareholder Information

60 Five-year Record

61 Shareholder Information

62 Notice of Annual General Meeting

71 Financial Diary 2007

72 CTC Offices

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1

Financial Highlights

Note 2006 2005 Increase

Revenue £79.1m £67.7m 17%

Profit before tax – adjusted 1 £13.4m £10.4m 28%

Profit after tax – adjusted 1 £12.4m £10.0m 23%

Earnings per share – adjusted 1 31.3p 27.5p 14%

Earnings per share – basic 28.1p 27.5p 3%

Dividend per share – interim 4.36p 3.96p 10%

– final 2 7.64p 6.04p 26%_________ _________

12.00p 10.00p 20%

Earnings per share (pence) (see note 1) Profit before tax (£m) (see note 1)

Source: Five-year Record, see page 60.

1. Profit before and after tax shown in these financial highlights have been adjusted by £1.2m in total compared with theequivalent statutory figures (2005 – nil). A goodwill charge of £1.1m arises under IFRS from the recognition of a deferred taxasset in relation to tax losses acquired with an insurance company subsidiary. Profit and earnings per share shown above havebeen adjusted to exclude the goodwill charge and amortisation of acquired customer relationship intangibles of £0.1m.Statutory profit and statutory earnings per share are calculated after goodwill and amortisation of acquired customerrelationship intangibles and are shown on page 22.

2. The final dividend is payable on 25 May 2007 to Shareholders on the register on 20 April 2007.

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2002 2003 2004 2005 2006

19.322.4 22.4

27.5

31.3

2002 2003 2004 2005 2006

7.68.8

9.510.4

13.4

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DividendIn line with the board’s desire tomaintain its progressive dividend policyand in recognition of the increased cashgenerated by the business and theboard’s confidence in the prospects for the group, it is proposed to raise the final dividend for the year by 26% to 7.64p (2005 – 6.04p). Subject toapproval by shareholders at the AGMthis will be paid to those on the registerat close of business on 20 April 2007.This dividend, together with the interimdividend of 4.36p (2005 – 3.96p), givesan increase year on year of 20%. TheBoard wishes to maintain a progressivedividend policy whilst ensuring asatisfactory level of dividend cover.

Outlook and Current TradingTrading since the year-end has been in line with management’s expectationsand we are confident that through acombination of organic growth, newacquisitions and new projects yourcompany can continue to prosper and grow.

My thanks are due, on your behalf, to allthose whose hard work has contributedtowards this excellent set of results.

John RoweChairman22 March 2007

Chairman’s Statement

The results for the year ended 31December 2006 demonstrate that thishas been another successful year foryour company with growth across all divisions.

Revenue was up 17% at £79.1m (2005 – £67.7m). After adjusting for the exclusion of goodwill amortisation,profit before tax rose by 28% to £13.4m(2005 – £10.4m), and profit after tax by 23% to £12.4m (2005 – £10m).Adjusted earnings per share rose by 14% to 31.3p (2005 – 27.5p) a lowerpercentage growth rate than in respectof the profit figures, as a result of theincreased number of shares in issue.

The combined result from the CTCServices and the CTC Managementdivisions grew by a very respectable18.8%.

I am also pleased to be able to reportthat net debt reduced to £35.5m (2005 – £44.8m) with free cash flow of£17.8m (2005 – £6.5m). The operatingprofit to cash conversion rate rose to123% (2005 – 60%), largely as a resultof additional cash flows generated bythe Run-off division.

The activities of the 819 people whowork within the group are wide ranging.Almost everything that we do, however,relates one way or another to thebusiness of insurance and, with thecreation of the new run-off division in2005, it is fair now to say that we areinvolved in most parts of the insurancemanagement process:

• we create and manage both mutualinsurance companies and captiveinsurance companies

• we provide investment managementservices on behalf of clients

• we manage claims through ouradjusting activities and

• we manage the orderly run-off of both property and casualty and lifeassurance companies, some of whichare owned by the group.

Against the backdrop of an increasinglycomplex and sophisticated insurancemarket it is gratifying that, in a numberof cases, our client relationships go backa very long time; we do not take ourclients for granted and all concernedseek to improve the quality of theservice provided both to existing clients and to the new clients the group continues to attract. The breadthof the group’s expanding client base isillustrated, on the one hand, by ourrecent appointment as managers of anew Yen10bn life reinsurance operationfor Japanese interests, and on the otherby our appointment as managers of asignificant new mutual insurer for UKlocal authorities, which starts operationsin April 2007.

As far as our Services division isconcerned, we have been instructed toact on some recent high-profile losses.We have also made significant progressin relation to the integration of the lossadjusting operations, and I hope to beable to announce further news aboutthis shortly.

The Run-off division considered variouspotential acquisitions, in both the life and the property and casualty sectorsand successfully completed three of these.It provided strategic advice to a variety of clients and worked extensively on anumber of business development projects.

Corporate GovernanceAs anticipated in last year’s statement,your board has concluded that weshould split the role of Chairman andChief Executive. Whilst remaining asGroup Chief Executive I shall, therefore,be stepping down as Chairman as soonas a suitable candidate can be found to fulfil the role of Chairman in a Non-Executive capacity.

Mike Dean, who has served as a Directorsince June 2000, will not be standing for re-election at the company’s AnnualGeneral Meeting. He has served yourinterests well and we will miss hiseffective input in our deliberations.

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Business Review

Description of the BusinessSummaryCharles Taylor Consulting (CTC)provides management and insurance-related services to both buyers ofinsurance and insurance companies.

Management DivisionManagement and Creation of Mutuals:This is the largest activity of theManagement division and involves theprovision of all the day-to-day servicesneeded to run mutual insuranceassociations. Mutuals are generallycreated by companies or organisationsoperating in the same or similar fields as each other and who accordingly havesimilar liability exposures. Rather thaninsure with a commercial profit-makinginsurer, members of mutual insuranceassociations collectively self-insure. A mutual insurance association is owned by its members who also providethe capital, in contrast to the normalrelations between a commercial insurerand a policy holder.

Investment Management:Investment management is providedboth to client mutuals and group ownedinsurance companies.

Captive Management, Insurance Reviewand Risk Management:These activities include the managementof captive insurance companies,principally but not exclusively inBermuda, and the provision of riskmanagement and other advice tocorporate buyers of insurance on thestructure and appropriateness of theirinsurance arrangements.

market) may lead to increasedcompetitive pressures and a climatewhere the alternative risk transfermechanisms, such as mutuals, becomeless attractive.

In most circumstances, however, oncecompanies have joined a mutual,through which they collectively controltheir own insurance affairs, they tend to remain members irrespective of anyshift in the insurance cycle.

The conditions that favour the creationand expansion of mutual insuranceschemes (i.e. hard market) are in someways balanced by being less beneficialfor the Services division businessesbecause there are usually fewer claims to deal with, and vice versa. In the caseof the Services division, a soft marketresults in cheaper insurance and lowerdeductibles, something which exposesinsurers to the greater probability ofclaims and thus increases theopportunities for the Services division.

While hard insurance markets also createfavourable conditions for the Run-offdivision, as insurers decide to reallocatecapital or dispose of non-core orunprofitable books of business, contractsfor managing the run-off of claimstypically last for several years oncesecured, whatever the cyclical conditions.

Services DivisionThis division provides loss adjustingcapabilities to the world’s insurancemarkets and Average Adjusting toshipowners. The adjusting activities onbehalf of insurers, which also includesurveying and risk assessment, areconcentrated in four principal areas:

• Aviation• Energy• Marine • Non-marine (property & casualty)

For management and reporting purposesAverage Adjusting is included within themarine business.

Run-off DivisionThe Run-off division, as its nameimplies, involves the orderlymanagement of insurance and lifeassurance companies which have ceasedunderwriting on the one hand and theclaims arising on discontinued books of insurance business on the other. This activity may involve acquisitions in either case.

Insurance CycleGiven that the group’s business is almostentirely related to insurance, the group’sactivities are subject to the insurancecycle, albeit in different ways. In the caseof mutual management, when insuranceis more expensive (hard market), thebalance shifts in favour of mutuals,where the aim is to provide insurance at cost and where there is the ability toabsorb high levels of aggregate riskbetween the members. By contrast theavailability of cheaper insurance (soft

ManagementServicesRun-off servicesInsurance companies

41%

42%

10%

7%

2006 business segment revenue 2006 geographical segment revenue

United KingdomBermudaOther EuropeNorth AmericaAsia Pacific

31%

35%

10%

9%

15%

Note: Before inter-segment eliminations.


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New Mutuals:In the second half of the year the groupwas appointed the manager of MarathonMutual, which provides coverage to UKcare homes. This mutual progressed wellduring the remainder of the year. Furtherprogress was made by the public sectorunit and the London Authorities Mutualwill operate from April 2007 as planned.The development of mutuals in otherareas of the public sector is expected tocontinue throughout 2007.

Investment Management:The group’s investment managementbusiness produced another goodperformance for its clients. Funds under management rose by 9% to over US$1.2bn.

Risk Management:Risk Management business increasedconsiderably as the US businesscontinued to widen its client base.

Services DivisionThere is a significant level of overlapbetween our various operations, bestillustrated by the Mexico office whichoperates in all the group’s adjustingbusiness sectors. Mexico was included in the Non-Marine business in 2005whereas it is included in Energy in 2006.For consistency purposes therefore the2005 percentages of revenue quotedbelow have been restated to reflect this.

Aviation: 25% of Services Revenue(2005 – 23%):Aviation revenues overall rose stronglyduring the year driven by an increase in claims instructions in Asia Pacific,together with the continueddevelopment of the liability business. In the USA a good performance from the new Miami office, which handled arange of Latin American claims, helpedoffset a more disappointing year for ourgeneral (light aircraft) Aviation businessin the USA.

Energy: 41% of Services Revenue (2005 – 43%):Revenues were similar to the prior yearas a result of the UK business seeingcertain large claims arising out of the2005 hurricanes in the Gulf of Mexicosettled earlier than anticipated and aquiet hurricane season during 2006.However, Mexico produced a strongperformance helped by the significantclaims they had received from HurricaneRita. Our Canadian operations alsoperformed well overall.

Marine: 23% of Services Revenue (2005 – 24%):The Marine business performed well in 2006. There were a number of largecasualties entrusted to the group whichbenefited the UK offices in particular.Jakarta, Piraeus and notably Shanghaialso performed better than expected.Revenues were down in Singapore.

Non-marine: 11% of Services Revenue(2005 – 10%):Non-marine performed well, particularlyin London, the largest office, as well asMiami, which improved considerably on 2005. Madrid suffered from a lack of new instructions. Progress was madein developing the Middle East businessthrough the Dubai office.

Run-off DivisionRun-off Services:The group is now the largest third-partyprovider of run-off services to the lifeinsurance sector on the Isle of Manfollowing the acquisition of two third-party administration businesses. The outlook to develop further lifeadministration business in 2007 is promising.

On the non-life business, LCL considereda significant number of potentialacquisitions during the year, none of which have been completed to date, a situation which reflects thegeneral market background which saw avery low level of completed acquisitions.The division intends to pursueopportunities aggressively where a dealsatisfactory to all parties can be achieved.

Insurance Companies:Property & Casualty BusinessThe management of the group-ownedBestpark International Limited andAssociated International Insurance(Bermuda) Limited has continued duringthe year with, in the case of Bestpark,deterioration on some large exposuresbeing broadly offset by successfulcommutations.

A minority interest in BestparkInternational Limited was sold duringthe year.

Business PerformanceManagement DivisionThe promising developments referred to at the half year continued into thesecond half with the result that thisdivision performed well.

Marine Mutuals:The Standard Clubs performed well in allareas. During the year the new IT systemwent live, the culmination of severalyears’ development.

Non-marine Mutuals:AmericasOur two Bermuda-based mutuals bothprospered.

Signal, which covers certain USMaritime employers’ liabilities to theiremployees in relation to workplaceinjuries, had another good year. Member payrolls were well ahead of expectations, particularly in theshipyard and offshore sectors. The decision to open a new officeon the West Coast of the US has beenvindicated, with further growth beingseen in this important area.

The SCALA mutual that covers theworkers’ compensation liabilities of the majority of Canadian ship-ownersalso performed well.

AustraliaThe group manages two mutuals inAustralia: Unimutual, a mutual forAustralian and New Zealand universities,and Capricorn Mutual, which providescoverage to members of the CapricornSociety, a trade association forAustralian and New Zealand businessesin the motor trade. Progress was made in developing both these mutuals but Capricorn in particular requiredadditional investment in bothinfrastructure and management time,which depressed the result for the year.

UKThe performance of the UK-basedmutuals was mixed. The LiveryCompanies Mutual increased itsmembership during the year, continuingthe expansion into areas of operationbeyond those of the original foundermembers, and the Stop Loss Mutual alsoperformed well. The Newsagents Mutualmembership fell during the yearprimarily as a result of the decision not to follow the commercial marketrating levels ever lower.

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Life BusinessThe life business has seen the successfulconsolidation of several of our smalleroffshore life companies into the group’slife assurer on the Isle of Man, LCLInternational Life Assurance. Thiscompany paid dividends of £4.8mduring the year.

Segmental information is provided on the activities of the Management,Services and Run-off divisions in note 3 to the financial statements.

ResultsIn 2006, turnover rose from £67.7m to£79.1m. Adjusted profit before tax rosefrom £10.4m to £13.4m.

Total Shareholder ReturnTotal shareholder return was a satisfactory27.6% in 2006, with the share price at391.25p at 29 December 2006 comparedto 316.25p at 30 December 2005 and234.00p at 31 December 2004 anddividends paid in 2006 of 10.40pcompared to 9.38p in 2005.

Dividends and Earnings per ShareThe proposed final dividend for 2006 is 7.64p (2005 – 6.04p) so that the totaldividend for the year is 12.00p. Thisrepresents a year-on-year increase of20%. It remains the intention of theboard to maintain a progressivedividend policy, while retaining

sufficient cash in the business to fundorganic and acquisition growth.Adjusted dividend cover of 2.6 timescompares to 2.8 times the previous year.

Adjusted earnings per share rose from27.5p to 31.3p, an increase of 14%.

There remain 3.1m shares under optionat the end of the year, which produce anadjusted diluted earnings per share of31.1p. Of the outstanding share options,1.7 million were exercisable below thecompany’s share price at the close ofbusiness on 31 December 2006 –391.25p.

Key Performance IndicatorsThe board uses a range of key performance indicators to measure past performance and as a basis for future business planning. At a corporate level, these indicators are all financial measures.

2006 2005 Definition

Earnings per share (p) 31.3 27.5 Adjusted earnings divided by weighted average number of shares.

Revenue growth (%) 17.4 7.3 Annual growth at constant exchange rates.

Operating margin (%) 19.5 16.8 Adjusted profit as a percentage of revenue.

Total shareholder return (%) – one year 27.6 40.6 Annual movement in share price plus dividends paid (assumingreinvested) divided by share price at beginning of year.

Total shareholder return (%) – three year 65.0 39.2 Three-year movement in share price plus dividends paid(assuming reinvested) divided by share price at beginning of period.

Interest cover (times) 5.3 7.8 Total profit from operations adjusted for amortisation of goodwilland acquired intangible assets plus investment and other incomefrom non-insurance activities divided by finance costs.

Dividend cover (times) 2.6 2.8 Adjusted profit for the year divided by dividends paid anddeclared for the year.

Free cash flow (£m) 17.8 6.5 Net cash from operating activities excluding movement in clientmonies plus interest received less expenditure on acquisition of tangible and intangible assets plus disposal proceeds.

Note: 2006 figures have been adjusted to exclude a goodwill charge of £1,100,000 and amortisation of acquired customer relationship intangibles of £139,000.

In addition to these corporate measures, the financial performance of every business unit is monitored regularly against budget andboth financial and non-financial measures are employed as appropriate to each business, for example fee earner productivity, numbersof new instructions, value and ageing of work in progress and debtors and cash collections for the time-based businesses, membershipnumbers and premium trends for mutual management businesses, and solvency and actuarial reserves for insurance companies.


6

TreasuryThe group continues to manage its exposure to foreign currencyfluctuations by the use of forwardforeign exchange contracts. Thecontracts open during the year and at the year-end were all to protect thegroup’s exposure to movements in the US$: £ sterling rate.

Over recent years, the US$ hasweakened significantly against the £ sterling. In 2003, the US$ profits of the group were translated at 1.63 to £1and this had moved to 1.85 by 2006.

In addition, the group uses workingcapital overdrafts in billing currenciesother than the accounting currency, as away to manage the exposure to currencyfluctuations.

With interest rates at historically lowlevels in recent years, the group hastended to maintain borrowings mostlyat floating rates. In view of the increasedborrowings since December 2005, thegroup took out an interest rate cap inMay 2006 which covers a principal of£20.65m (reducing as borrowings arerepaid) and caps three-month LIBOR at 5.5% for three years.

The borrowings in £ sterling and US$ are principally at rates that are linked to LIBOR plus margins of 1.25 – 1.75%.

Interest cover has reduced to 5.3 times(2005 – 7.8 times), resulting from a fullyear’s interest charge on the increasedlevel of borrowings undertaken to financethe acquisition of LCL. The level of coverremains satisfactory.

TaxationDuring 2006, the effective tax rate onprofits was 8.6%, an increase on the2005 level (3.8%), reflecting a higherlevel of UK and overseas taxable profitsand lower prior year’s adjustments. Cashtax liabilities are significantly lower as aresult of the UK tax relief available fromBestpark International Limited’s losses.

FinancingDuring the year, £17.8m of free cashflow was generated (representing 123% of adjusted profit from operations,compared to 60% in 2005) and loanrepayments of £11.7m were made. Net debt reduced by £9.2m to £35.5m,with a reduction of £5.8m in borrowings,a reduction of £4.3m in client funds and a reduction of £0.9m in cash andcash equivalents.

The group has issued share capital(including share premium) of £29.2m at 31 December 2006.

During the year, a number of executiveand share scheme options wereexercised producing cash of £375,000.During 2007, 1.5 million options areexercisable at below the market price at 31 December 2006. If they were allexercised they would generate £4.7m in cash for the group.

AcquisitionsIn June 2006, the group acquired MGILoss Adjusters Inc. The maximumconsideration will amount to £2.0m and is subject to profitability targetsbeing achieved.

Three small acquisitions were completedwithin the Run-off Division in the year,two of which are third-partyadministration businesses on the Isle of Man (Vertex Administration and theremaining 40% minority interest in FITAdministration) and one closed lifecompany, Premium Life International.

Retirement Benefit SchemesAs explained in note 30 to the financialstatements, the group has four definedbenefit pension schemes, two of whichhave liabilities which exceed their assetsby a material amount. Arrangementshave existed for some time to fund thescheme deficits over a period agreedwith the trustees of the schemesinvolved, but it is recognised that, in order to meet the reasonableexpectations of scheme members andindeed the new statutory fundingobjective, the group is likely to seekcomplete funding within a shorterperiod. The company intends to addressits obligations fully, while balancing the various requirements of schememembers, shareholders and otherstakeholders.

Principal Risks and UncertaintiesThe principal risks facing the Group and the processes by which they aremanaged are explained in note 2 to thefinancial statements and financial risksand uncertainties are explained in note25 to the financial statements.

John RoweChief Executive

Damian ElyChief Operating Officer

George FitzsimonsFinance Director22 March 2007

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Thomas Damian ElyBorn 1964, Group Chief Operating OfficerDamian Ely joined the company in 1988 to work in London in the MutualManagement division. In 1995, in lightof the growth of Signal Mutual, he wastransferred to the United States as SeniorVice President Operations for SignalAdministration. In 1998, with thedevelopment of the Services business in the Americas, he was appointed ChiefOperating Officer, Americas. He returnedto the UK to take up the role of GroupChief Operating Officer from 1 October2005. He was appointed to the board on 12 October 2005.

George William Fitzsimons FCABorn 1962, Chartered Accountant, GroupFinance DirectorGeorge Fitzsimons joined the companyin 2005. He previously held FinanceDirector and other senior financialpositions in the legal profession,aviation and retailing. He qualified as a Chartered Accountant with Coopers &Lybrand in 1988 and was a managementconsultant until 1991. He was appointedto the board on 1 June 2005.

John Stephen Matthews ACA Born 1960, Chartered Accountant, FinanceDirector of Mutuals and AcquisitionsStephen Matthews joined the companyin 1994 as Divisional Finance Director of the Marine Mutual division. He wasGroup Finance Director from January1996 to June 2005 and now hasresponsibility for the accounting andregulatory affairs of the group’smanaged mutuals and for the financialaspects of acquisitions. Prior to joiningCharles Taylor he was at Touche Ross &Co., and predecessor firms. He qualifiedas a Chartered Accountant in 1986. He was appointed to the board on 16 September 1996.

Raymond Tak Chiu Wong Born 1948, Average Adjuster, ExecutiveDirector Asian regionRaymond Wong, who had been with theRichards Hogg Group for 31 years priorto its acquisition in December 1997, has the supervisory role for the groupactivities in the Asian region. He has beena fellow of the Association of AverageAdjusters since 1980. He was appointedto the board on 1 January 1999.

John Stephen Martin RoweBorn 1951, Barrister, Chairman and GroupChief ExecutiveJohn Rowe joined Charles Taylor in1973. Prior to his appointment as ChiefExecutive in May 1993, and Chairmanin September 1993, he was ChiefExecutive of Charles Taylor’s LondonManagement division responsible for themanagement of the group’s UK-basedclient mutuals and between 1986 and1990 had been responsible for newbusiness development outside the US.He was appointed to the board on 16 September 1996.

Alistair John GroomBorn 1953, Barrister, Deputy Chairmanand Chief Executive Management Division Alistair Groom joined the group in 1977.From 1980 to 1990 he was responsiblefor handling the claims of Italianshipowners. From 1990 to 1991 he wasjoint senior P&I underwriter, becomingOperations Director of the MarineMutual division in 1991 and ChiefExecutive of the P&I Division in May1993. He was appointed Chief Executiveof the CTC Management Division in 2001and became Deputy Chairman of CharlesTaylor Consulting plc in February 2003. In addition to his responsibilities withinthe group, he served as Chairman of theInternational Group of P&I Clubs betweenNovember 2003 and November 2006. He was appointed to the board on 16 September 1996.

Joseph Garland Roach IIIBorn 1946, Deputy Chairman, ExecutiveDirector and Chief Executive OfficerAmericasJoe Roach joined the group in 1995 and is Chief Executive of SignalAdministration Inc. He joined McQuearyand Henry Inc,. an insurance broker, in 1985 and he worked until the end of 1995 for Signal Administration Inc.(Texas), which provided marketing andrisk selection services to Signal andbecame joint Deputy Chairman ofCharles Taylor Consulting plc in July2006. He was appointed to the board on 13 February 1997.

Michael Charles DeanBorn 1948, Executive Director – BusinessDevelopment/Risk Management Michael Dean entered the insuranceindustry in 1968 and has extensiveexperience of risk management issues,having worked for many major oilcompanies and contractors. He wasappointed to the board on 12 June 2000.

John Stewart McKayBorn 1945, Aviation Engineer, ExecutiveDirector and Chairman Services Division John McKay became Chief Executive of Lloyd’s Aviation Division in 1994 and since its acquisition by the group in July 2000 has continued in this role.He is also Chairman of the CTC ServicesDivision, comprising those companieswithin the group primarily focused onacting for insurers. He was appointed to the board on 13 September 2002.

Andrew BrannonBorn 1960, Chartered Accountant/LicensedInsolvency Practitioner, DirectorAndrew Brannon is a co-founder anddirector of the LCL Group. The LCLGroup was acquired by the group inDecember 2005 and provides a widerange of specialist claims management,advisory and run-off services, primarilyto the insurance market. In 1997, heestablished MRC Consultants to provideInsolvency Practitioners appointed toinsurance and reinsurance institutionswith management and other relatedservices including run-off administration.In 2002, MRC Consultants became amember of the LCL Group and changedits name to LCL Consulting Limited. He was appointed to the board on 5 January 2006.

Richard John Wolseley Titley*†§

Born 1939, Senior Non-Executive Directorand Chairman of the RemunerationCommittee Richard Titley, was with the SedgwickGroup for 36 years, and retired asChairman. When the Sedgwick Groupwas taken over by Marsh & McLennanhe continued until his retirement asChairman of the Middle East and Africa and Chairman of the EuropeanDevelopment Group. He was appointedto the board on 17 January 2000.

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Michael Anthony Knight FCA*†§

Born 1953, Non-Executive Director andChairman of the Audit CommitteeMichael Knight, until June 2001, was an advisory partner in Ernst & Young,servicing primarily major plcs andmultinationals. He is also a non-executive director of Sutton HarbourHoldings plc. He was appointed to the board on 16 March 2000.

Judith Christine Hanratty OBE*†§

Born 1944, Non-Executive DirectorJudith Hanratty retired in 2003 asCompany Secretary of BP plc. She isChairman of The CommonwealthInstitute and a Non-Executive Director of The Gas and Electricity MarketsAuthority and Partner Re Limited. She is also a member of the Council ofLloyd’s of London and Honorary Fellow,Lucy Cavendish College, Cambridge. She was appointed to the board on 6 February 2002.

John Harrison Howes*†§

Born 1940, Non-Executive Director andChairman of the Nomination Committee John Howes has 45 years’ experience in the insurance industry. He began hiscareer with J H Minet where he becameManaging Director of the AviationDivision and a Director of MinetHoldings. In 1981 he left to form theAerospace Division of Crawley Warrenwhere he was instrumental in setting upISB (International Space Brokers) andserved as Deputy Chairman of CrawleyWarren Group Ltd and latterly of BlanchCrawley Warren up until the time oftheir takeover by Benfield in 2001 wherehe continues as an aerospace consultant.He was appointed to the board on 6 February 2002.

Company SecretaryIvan John Keane Born 1963, SolicitorIvan Keane joined the company in 1989.From 1989 to 1992 he was responsiblefor handling claims from shipowners,from 1992 to 1997 he acted asAssociation Manager to the Stop LossMutual, from 1997 to 2000 he was anExecutive Director and CompanySecretary of Charles Taylor’s P&IDivision in Singapore and PrincipalOfficer and Company Secretary ofStandard Asia in Singapore. In 2000 he was appointed Director of BusinessDevelopment of the P&I Division inLondon. He was appointed GroupCompany Secretary on 1 March 2005.

* Members of Audit Committee† Members of Remuneration

Committee§ Members of Nomination Committee

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The Report of the Directors should beread in conjunction with the BusinessReview on page 3.

Principal Activities and Business ReviewThe group’s main trading activities areexplained in the Business Review.

The company is required by theCompanies Act to set out in this report a fair review of the business of the group during the financial year ended 31 December 2006 and of the positionof the group at the end of the year and a description of the principal risks anduncertainties facing the group (‘businessreview’). The information that fulfils thisrequirement is set out on pages 3 to 6.

Consolidated Financial StatementsThe consolidated financial statementshave been prepared in accordance withthe basis of preparation set out in note 1to the financial statements.

DividendsAn interim dividend for the year ended 31 December 2006 of 4.36p(2005 –3.96p) per share was paid on 24 November 2006. The directorsrecommend a final dividend of 7.64p(2005 – 6.04p) per share. If approved,the final dividend will be paid on 25 May 2007 to those shareholderswhose names are on the register on 20 April 2007. The company operates aDividend Reinvestment Plan. This givesshareholders the opportunity to use theircash dividends to buy additional sharesthrough a special dealing arrangementwith the company’s registrars.

Employee Share SchemesOptions over 138,085 ordinary sharesunder Part A, 63,265 ordinary sharesunder Part B and 22,552 ordinary sharesunder Part C of the Charles TaylorSharesave Scheme were granted on 5 May 2006 to eligible employees of the group. These options entitle theparticipants to acquire 22,552 shares on 1 July 2008, 164,144 shares between1 June 2009 and 30 November 2009,and 37,206 shares between 1 June 2011and 30 November 2011 at a price of337.5p per share.

Options over 43,809 ordinary sharesunder Part A and 143,691 ordinaryshares under Part B of the Charles TaylorExecutive Share Option Scheme weregranted on 29 September 2006 toeligible employees of the group. Theseoptions entitle the participant to acquireshares between 29 September 2009 and

28 September 2016 at a price of 397.5pper share, subject to the achievement of the relevant performance targets.

Awards covering 12,648 ordinary shareswere granted under the Charles TaylorLoyalty Plan to eligible employees of the group during the year. These awardsentitle the participants to acquire sharesafter the third anniversary of the awarddate for nil consideration.

The awards were made on:

17 January 2006 2,3417 February 2006 2,11728 June 2006 5,9727 July 2006 2,218

As at 31 December 2006, the CharlesTaylor Employees’ Share Ownership Plan (the ‘ESOP’) held 64,224 shares.The ESOP trustee has agreed to satisfythe options granted under Part B of theCharles Taylor Executive Share OptionScheme and the awards granted underthe Charles Taylor Loyalty Plan.

Share Allotment and Pre-emptionRightsIn accordance with the company’snormal practice, a resolution will beproposed at the Annual General Meetingto renew the directors’ authority to allot unissued ordinary shares up to amaximum nominal value of £102,994(which is equivalent to approximately26 per cent of the company’s issuedshare capital as at 22 March 2007). Theauthority will expire on the earlier of thedate of the company’s Annual GeneralMeeting for 2008 and 4 August 2008.

A further resolution will be proposed at the Annual General Meeting to renewthe directors’ authority to issue ordinaryshares for cash without first beingrequired to offer such shares to existingshareholders on a pro rata basis. Theauthority will expire on the earlier of thedate of the company’s Annual GeneralMeeting for 2008 and 4 August 2008.The authority will be limited to ordinary shares having an aggregatenominal value of £19,850 (whichrepresents approximately 5% of theissued share capital of the company as at 22 March 2007).

Substantial InterestsAt 22 March 2007 the following persons were registered in accordancewith Section 211 of the Companies Act1985 as being interested in thecompany’s shares:

Number Percentage

of shares of issue

Hermes PensionManagement 5,224,825 13.16%

AXA Framlington Investment Management 3,355,340 8.45%

Columbia WangerAsset Management 2,900,000 7.30%

INVESCO Asset Management 2,651,048 6.68%

Morley FundManagement 1,629,574 4.10%

M&G Investment Management 1,590,580 4.01%

Legal & General InvestmentManagement 1,442,311 3.63%

UBS Global AssetManagement 1,232,702 3.10%

Save for the above, the directors areunaware of any person, other than thedirectors whose interests are shown on page 17, having a disclosable interestin the issued ordinary share capital ofthe company.

Future DevelopmentsThe company will continue to pursue its activities and seek further businessopportunities in the UK and overseas.

Research and DevelopmentThe group continues to invest in researchand development of new opportunitiesin the alternative risk market.

Creditor Payment PolicyPayments are made to suppliers inaccordance with agreed terms andconditions, provided that the terms and conditions are met by suppliers.Amounts due to suppliers, as shown in creditors, expressed as a number of days are 30 days (2005 – 30 days).

EmployeesOur employees play a vital role inthe continuing success of the group. At 31 December 2006, the group had819 employees compared to 795 at 31 December 2005.

The group operates a policy of equalopportunities for all employees.Appropriate training and careerdevelopment are available at all levelsand the group is committed to helpingemployees to realise their potential bygaining relevant skills and experience.

Full and fair consideration is given to applications for employment madeby disabled persons. Employees whobecome disabled will, wherever

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possible and practicable, be retained in employment and, where necessary,appropriate retraining will be provided.

Share OwnershipEmployees are encouraged to becomeshareholders in the company. As at 31 December 2006, 217 employees haveinvested in the company’s shares andmany participate in the employee shareschemes. As at 31 December 2006, 292employees held options over shares.

Corporate GovernanceA full review of corporate governanceappears on page 11. The auditors,Deloitte & Touche LLP, have reviewedthe directors’ statement on thecompany’s compliance with the Code of Best Practice, insofar as it relates tothe paragraphs of the Code which theFinancial Services Authority has specifiedfor their review, and their report appearson page 20. All directors are able to takeindependent professional advice infurtherance of their duties if necessary andhave access to the advice of the companysecretary. All directors, in accordance withthe Code, will submit themselves for re-election at least once every three years.

CommitteesThe Nomination Committee consists of the four non-executive directors and J H Howes chairs the committee. TheNomination Committee recommends to the board the appointments of newexecutive and non-executive directors.

The Remuneration Committee consistsof the four non-executive directors and R J W Titley chairs the committee.The Remuneration Committee makesrecommendations to the board onexecutive directors’ emoluments.

The Audit Committee consists of the fournon-executive directors and M A Knightchairs the committee. The AuditCommittee reviews the company’sprincipal risks, financial controls and theappointment of the external auditors.

A full review of the workings of thecommittees are reported on in theCorporate Governance Statement.

All the committees’ terms of reference can be obtained through the company’s website atwww.charlestaylorconsulting.com under the company’s CorporateGovernance section.

RiskThe principal risks facing the Group and the processes by which they aremanaged are explained in note 2 to thefinancial statements and financial risksand uncertainties are explained in note25 to the financial statements.

Charitable and Political ContributionsCharitable contributions during the yeartotalled £4,284 (2005 – £6,451).

No political contributions were madeduring the year (2005 – £nil).

DirectorsBrief biographies of the directors are givenon pages 7 to 8. All non-executive directorsare independent directors. R J W Titley is the senior non-executive director.

In accordance with the Articles ofAssociation, J S M Rowe, R J W Titley, M C Dean and M A Knight retire at theforthcoming Annual General Meeting;and with the exception of M C Dean,offer themselves for re-election.

Details of the directors’ notice periods are given on page 15.

Share InformationThe company’s shares are listed on theLondon Stock Exchange under sector‘General Financial’ and are indexed bythe FTSE under the ‘Small Cap and AllShare’ index. The company share priceappears in various UK nationalnewspapers, including the FinancialTimes, and appears on various financialwebsites under the code ‘CTR’.

As at 31 December 2006 the issuedshare capital of the company was39,699,667 shares and the averagemonthly trading volume was 1,719,000shares (2005 – 2,274,000 shares).

Special BusinessProposals will be put at the AnnualGeneral Meeting, to:(i) Renew the authority to make

donations to European Unionpolitical organisations, notexceeding £10,000.

(ii) Renewal the authority to makemarket purchases of ordinary sharesof 1p each in the capital of thecompany. The authority will allow the company to purchases up to amaximum of 10% of its issued sharecapital during the next year at aminimum price of 1 pence and amaximum price of 5% above themarket price of the company’s shares at the relevant time.

(iii) Renew the authority of the directorspursuant to Section 80 of theCompanies Act 1985 to exercise all powers of the company to allotrelevant securities up to an aggregatenominal amount of £102,994.

(iv) Renew the authority of the directorsto allot shares other than pro rata to existing shareholders generally up to a maximum of an aggregatenominal amount of £19,850.

(v) Renewal of the company’semployees share schemes whichexpired last October:The Charles Taylor ConsultingExecutive Share Option Scheme;The Charles Taylor Consulting LongTerm Incentive Plan 2007;The Charles Taylor ConsultingLoyalty Plan 2007;The Charles Taylor ConsultingSharesave Scheme 2007.

Please also refer to the Notice of theAnnual General Meeting on pages 62 to 70 for further information.

Disclosure of Information to AuditorsIn the case of each of the persons whoare directors of the company at the datewhen this report was approved:

• so far as each of the directors is aware,there is no relevant audit information(as defined in s234ZA of theCompanies Act 1985) of which thecompany’s auditors are unaware; and

• each of the directors has taken all thesteps that he/she ought to have takenas a director to make himself/herselfaware of any relevant auditinformation and to establish that thecompany’s auditors are aware of thatinformation.

The company’s auditors, Deloitte &Touche LLP, have confirmed that theyare willing to continue in office.Accordingly, a resolution is to beproposed at the Annual General Meetingfor the re-appointment of Deloitte &Touche LLP as auditors of the companyat a rate of remuneration to bedetermined by the directors.

Approved by the directors and signed on behalf of the board.

I J KeaneSecretary22 March 2007

Charles Taylor Consulting plc isregistered in England No. 3194476.

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Corporate Governance

Statement of Compliance with theCode of Best PracticeThroughout the year ended 31 December2006, the company has been incompliance with the Code provisions set out in section 1 of the July 2003 FRC Combined Code on CorporateGovernance except for the matters setout below.

Statement About Applying thePrinciples of Good GovernanceThe company has applied the Principlesof Good Governance set out in section 1of the Combined Code by complyingwith the Code of Best Practice asreported above. A further explanation of how the principles have been appliedis set out below. The company iscommitted to regular dialogue with itsinstitutional shareholders in accordancewith Principle D.1 and a number ofmeetings have taken place during 2006.

Management of the Company in 2006Board Balance and IndependenceThere are 14 members of the board, of whom 4 are non-executive. The 10executive members of the board includethe heads of the various businessdivisions. All the non-executivemembers are regarded as independent,not withstanding the share holdingsheld by two of the non-executivedirectors, which are not considered bythe board to be significant. At the end of 2006, two of them had served morethan six years and both are due for re-election in 2007. The other two non-executive directors were re-electedin 2005. The terms and conditions ofappointment of the non-executivedirectors are available for inspection atthe company’s registered office duringnormal business hours, and at theAnnual General Meeting.

Board AppointmentsAll board appointments are subject to an appropriate selection process by theNomination Committee, which makes a recommendation to the board.

Board Performance EvaluationAll board members are assessed annuallyon their performance and contributionto the company’s affairs. All theexecutive directors continue tocontribute effectively to the board andclient affairs, giving up personal time toensure that full attention is given to allmatters. The non-executive directorsplay an important role and contributeconsiderable time and knowledge to the company’s affairs and workings.

Board ResponsibilitiesThe principal role of the board is toensure the long term prosperity of thecompany by setting broad corporategovernance policies and ensuring thatthey are effectively implemented bymanagement. The board carries out this role by:

• Overseeing the company’s operationsworldwide

• Appointing and removing, whereappropriate, the senior executives of the company

• Providing input into and approval of management’s development ofcorporate strategy and performanceobjectives

• Reviewing and ratifying the company’ssystem of governance, riskmanagement, internal control andgroup compliance

• Approval of budgets and monitoringprogress against budget

The board has delegated to managementresponsibility for:

• Managing the company’s day-to-dayoperations

• Developing the company’s annualbudget, and recommending it to theboard for approval and managing theday-to-day operations within thebudget

• Development and maintenance of client relationships

• Implementing corporate strategy and making recommendations onsignificant corporate strategic initiatives

J S M Rowe, as chairman, is responsiblefor the direction and effectiveness of theboard, the strategic development of thecompany, and major client relationships.Since March 2005 he has also beengroup chief executive officer and hasbeen supported by T D Ely, the groupchief operating officer, in this role sinceOctober 2005.

The board has reviewed the desirability of the roles of chairman and group chiefexecutive officer continuing to becombined and has decided that theseroles should again be split. The companywill now recruit a non-executivechairman, who will be responsible for thedirection and effectiveness of the board. J S M Rowe has agreed to continue in his current roles until a non-executivechairman is appointed and thereafter toremain as group chief executive officer.

A J Groom is joint deputy chairman and is the chief executive officer of the Management Division.

J G Roach III was appointed joint deputychairman on 26 July 2006 and is thechief executive officer of CTC Americas.

R J W Titley is the senior non-executivedirector.

The Executive Committee (EXCOM),formed of executive board members andsenior executives from the businesses,meets typically once a month to consideroperational and commercial matters.

Audit CommitteeM A Knight chairs the Audit Committeeon which the non-executive directors, R J W Titley, J C Hanratty and J H Howesalso sit. There have been three meetingsduring the year. The committee gaveconsideration to the appointment of theexternal auditors and the nature andscope of the interim and year-endaudits. It reviewed the interim andannual reports. It considered theimplication of changes in accountingpolicies, and compliance withaccounting standards. It considered theindependence and effectiveness of theexternal auditors and the scope andextent of non-audit services provided by them.

It reviewed the integrity of the company’sfinancial controls, the operation andresources of the Internal Control unit,the Internal Control unit’s reports andthe Group Compliance reports. Thecompany’s principal risks were reviewedby the committee and the board.

Nomination CommitteeJ H Howes chairs the NominationCommittee, on which the non-executivedirectors, M A Knight, J C Hanratty andR J W Titley also sit. There has been onemeeting during the year to consider new appointments.

Remuneration CommitteeR J W Titley chairs the RemunerationCommittee, on which the non-executivedirectors, M A Knight, J C Hanratty and J H Howes also sit. The report of theRemuneration Committee is set out onpages 14 to 18. There have been threemeetings during the year.

The terms of reference of the Audit,Nomination and RemunerationCommittees are available through the company’s website atwww.charlestaylorconsulting.com

The Non-Executive directors are allmembers of the Audit, Remunerationand Nomination Committees.


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Corporate Governance (continued)

Total Number of Meetings in 2006Board Meetings Committee Meetings

Audit Nomination Remuneration

Total number of meetings in 2006 6 3 1 3

Number of meetings attended in 2006

J S M Rowe 6 – – –

A Brannon (appointed 5 January 2006) 5 – – –

M C Dean 5 – – –

T D Ely 6 – – –

G W Fitzsimons 6 – – –

A J Groom 5 – – –

J S Matthews 6 – – –

J G Roach III 6 – – –

R T C Wong 6 – – –

J S McKay 5 – – –

R J W Titley, Non-Executive* 5 3 1 3

M A Knight, Non-Executive* 5 3 1 3

J C Hanratty OBE, Non-Executive* 6 2 1 3

J H Howes, Non-Executive* 3 2 1 2

* The Non-Executive directors are all members of the Audit, Remuneration and Nomination Committees.

MeetingsDuring the year there were six scheduledboard meetings. In addition there werethree further administrative boardmeetings to finalise matters alreadyconsidered by the board.

Maintenance of a Sound System of Internal ControlThe board has applied Principle C.2 of the Combined Code by establishing a continuous process for identifying,evaluating and managing the principalrisks the company faces. These risksinclude strategic, operational, legal,regulatory, reputation and financialrisks. The board reviews this process, at least twice a year. In accordance withInternal Control: Guidance for Directorson the Combined Code, published inJuly 2003 this process has been in placefrom the start of the financial year to thedate of approval of this report. As notedbelow, in the Internal Control section,the company’s risk managementsystems have been further enhanced,which has enabled the board to carryout a detailed review of the company’sprincipal risks. The board is responsiblefor the group’s system of internalcontrol and for reviewing itseffectiveness. The company’s riskmanagement system is designed tomanage, rather than eliminate, the riskof failure to achieve business objectives,and can only provide reasonable, butnot absolute, assurance against materialmisstatement or loss.

Role of the Board in Internal ControlThe board is responsible for thecompany’s system of internal controland for reviewing its effectiveness and itscompliance with Provision C.2.1 of theCombined Code. The board regularlyreviews the effectiveness of the group’ssystem of internal control. The boardreviews reports from management andthe Internal Control unit to considerwhether significant risks which havebeen identified, have been appropriatelyevaluated, managed and controlled andany significant weaknesses identified arepromptly managed or remedied.

The board has received, at each of itsregular quarterly meetings, a detailedreport from the director of InternalControl.

This report includes an audit timetable,a summary of internal audits carried outtogether with a schedule of outstandinginternal audit issues, and details of allidentified incidents or non-compliancereported during the period. None of theitems reported was of a significant natureor involved material financial loss.

Internal Control FunctionsDuring the course of the year the internalcontrol unit operated effectively inconducting audits both in the UK and inthe company’s major overseas locations.These audits covered the operating,financial and administrative parts of thebusiness taking as their points of referencethe risk and incident registers, which aremaintained by management around the

world, and overseen by the InternalControl unit. The unit from time to timedelegates the carrying out of audits toappropriate independent senior personneloutside the Internal Control unit.

During 2006 the Internal Control unitwas restructured, with the separation ofthe internal audit and risk managementfunctions on the one hand from the groupcompliance function on the other. Eachfunction is now managed by a seniormanager. The compliance function withinthe company is supported as necessaryby designated individuals in each of thecompany’s businesses or divisions.

The company’s risk managementcontrol system was reviewed and revisedtowards the end of 2006, with the aimof providing a more user-friendly systemto record and monitor the principal risksfaced by the company on the one handand the controls designed to mitigatethose risks on the other.

Regulation by Financial ServicesAuthorityThe company is regulated as anInsurance Intermediary by the FinancialServices Authority (FSA), in accordancewith the requirements of the FinancialServices and Markets Act 2000.

Risk SummaryThe Director of Internal Controlproduces twice yearly a risk summary,derived from the Risks Register, whichsets out the principal risks and thecontrols in place to manage those risks.

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The external auditors produce anassessment of the company’s financialrisks and the way in which the externalaudit addresses those risks.

Both of these documents are the subjectof a review by the Audit Committee andthe board.

Whistle BlowingThe company has procedures in placewhich enable staff to raise, in confidence,concerns about possible improprieties in financial reporting or other matters.

Business ContinuityThe company continues to develop and enhance its business continuityarrangements to cope with anyreasonably foreseeable potentiallydisruptive incident. The company has various offices around the worldwhich can provide a business continuityrole as required. A variety of scenarioshave been modelled, including dealing with an outbreak of avian flu, and the response systems tested withsatisfactory results. Further testing is planned for 2007.

In February 2007, the company lost allelectricity, IT and telecommunicationsservices to its Head Office for a period oftwenty-four hours as a result of a nearbyburst water main. The company’s businesscontinuity systems proved to be effective.

Ethical PolicyThe company is committed to conductingits business affairs in a fair, proper andethical manner and in compliance withall applicable laws, regulations andprofessional standards. The companyhas adopted a set of corporate values,which have been communicated to allemployees. The company also reviewedand/or adopted during the year a revisedshare dealing code and price sensitiveinformation guidelines and reviewed itsanti-money laundering policies.

Environmental PolicyDespite the fact that the company’soperations as a service provider do notaffect the environment to the sameextent as other companies, the companyis nevertheless committed to minimisingthe environmental impact of its businessoperations and to achieving bestpractice in areas in which it does havean environmental impact. The companyis committed to reducing its carbonfootprint and strives to minimise itsenergy consumption through its energymanagement policy and by encouraging

staff to be aware of the environment and to use energy thoughtfully. Wherepossible the company uses energy-efficient business appliances andcomputers, thereby giving rise to energysavings and a reduction in emissions.Electronic document managementsystems have been implemented insome business units to reduce paperusage. Where practicable the companyseeks to source its supplies from localbusinesses so as to minimise distributionand transport-related emissions. In orderto reduce travel-related emissions thecompany has invested in video-conferencing facilities in various offices.As part of its environmental policy thecompany has also implemented variousrecycling programmes.

Employment PolicyThe company is committed to providingan environment in which individualtalents can flourish and for there to be fair and equal employmentopportunities for all persons. Thecompany is an equal opportunitiesemployer and bases all decisions onindividual ability without regard to race,religion, beliefs, political opinions, creed, colour, ethnic origin, citizenship,nationality, marital/parental status,identity expression, sex, gender, sexualorientation, age or disability.

Disabled PersonsThe company gives full and fairconsideration to applications foremployment made by disabled personsand will make reasonable adjustmentsto remove substantial disadvantagesfaced by disabled persons, whether asemployees, candidates for promotion or job applicants. If an employee were to become disabled whilst employed,the company would endeavour to make arrangements, in so far as possible,to continue their employment with the company.

Health and SafetyThe company seeks to ensure the health,safety and welfare of all its employeesand to meet all its obligations under the relevant legislation. Employees are expected to co-operate withmanagement to create a safe and healthyworking environment for themselvesand others and to take reasonable carefor their own health, welfare and safetyat work. The company’s health andsafety responsibilities are accorded equal priority with the company’s other statutory duties and objectives.

Community Involvement and CharitableDonationsThe company seeks to encourageemployee involvement in communityprojects and programmes. Thecompany’s staff supported a number of charities through various fund raisingactivities during 2006.

The company made charitabledonations of £4,284 during 2006.

Political DonationsIt is the company’s policy not to makepolitical donations. The company madeno political donations during 2006.

Going Concern BasisAfter making enquiries, the directorshave formed a judgement, at the time of approving the financial statements,that there is a reasonable expectationthat the company has adequateresources to continue in operationalexistence for the foreseeable future. For this reason, the directors continue to adopt the going concern basis inpreparing the financial statements.

Other DirectorshipsGroup companies provide a wide rangeof services to a number of mutualinsurance associations. In some cases,regulatory requirements dictate that for administrative convenience, themanagers should also be directors of themutual insurance associations to fulfilvarious controlled functions. Details of the directorships held by executivedirectors are listed below.

The Standard Steamship Owners’Protection & Indemnity Association(Bermuda) LimitedJ S M RoweA J GroomThe Standard Steamship Owners’Protection & Indemnity Association(Europe) LimitedJ S M RoweA J GroomThe Standard Steamship Owners’ MutualWar Risks Association LimitedA J GroomSignal Mutual Indemnity AssociationLimitedT D ElyJ G Roach IIIPoseidon Insurance Company PtyLimitedJ S Matthews

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Report of the Remuneration Committee

Initial grants of options will becomeexercisable only if the total earnings perordinary share increase by the RetailPrice index plus 6% over the three-yearperiod. In addition, personal targetshave to be attained.

The company also operated a SAYEShare Option Scheme for eligibleemployees under which options may be granted at a discount of up to 20% of market value. The executive directorsare eligible to participate in the SAYEShare Option Scheme.

The various share option schemeslapsed in October 2006 and resolutionsto renew the schemes will be proposedat the forthcoming Annual GeneralMeeting, see page 62.

Details of the options granted andexercised are shown on page 17.

Performance GraphThe following graph shows thecompany’s performance, measured by total shareholder return, comparedwith the performance of the FTSE AllShare Index, also measured by totalshareholder return. The FTSE All ShareIndex has been selected for thiscomparison because it may be the indexused by the company to determinepayments under the annual incentivescheme for executive directors.

Pension ArrangementsThree of the executive directors aremembers of a company pension scheme.Their dependants are eligible fordependants’ pensions and the paymentof a lump sum in the event of death in service. The pension arrangementsprovide for a pension on retirement of two-thirds of basic annual salary after 40 years’ eligible service. No otherpayments to directors are pensionable.

This report has been prepared inaccordance with Schedule 7A to theCompanies Act 1985. The report alsomeets the relevant requirements of theListing Rules of the Financial ServicesAuthority and describes how the boardhas applied the Principles of GoodGovernance relating to directors’remuneration. As required by the Act, a resolution to approve the report willbe proposed at the Annual GeneralMeeting of the company at which thefinancial statements will be approved.The Act requires the auditors to report to the company’s members on the‘auditable part’ of the Directors’Remuneration Report and to statewhether in their opinion that part of the report has been properly prepared in accordance with Companies Act 1985.The report has therefore been dividedinto separate sections for unaudited and audited information.

UNAUDITED INFORMATIONRemuneration CommitteeThe company has established aRemuneration Committee which is constituted in accordance with therecommendations of the Combined Code.The members of the committee are R J W Titley, J C Hanratty, M A Knightand J H Howes, who are all independentnon-executive directors, and thecommittee is chaired by R J W Titley.

None of the committee has any personalfinancial interest (other than asshareholders), conflicts of interest arisingfrom cross-directorships, or day-to-dayinvolvement in running the business.The committee makes recommendationsto the board on directors’ remuneration.No director plays a part in any discussionabout his or her own remuneration.

In determining the directors’remuneration for the year, the committeeconsulted J S M Rowe (Chairman).

Remuneration PolicyExecutive remuneration packages areprudently designed to attract, motivateand retain directors of the high calibreneeded to maintain the company’sposition. The performance measurementof the executive directors and keymembers of senior management and the determination of their annualremuneration package are undertakenby the committee. The remuneration of the non-executive directors isdetermined by the board within limitsset out in the Articles of Association.

There are four main elements of theremuneration package for executivedirectors and senior management:• Basic annual salary (including

directors’ fees) and benefits;• Annual bonus payments which cannot

exceed 100% of basic salary;• Share option incentives; and• Pension arrangements.

Basic SalaryAn executive director’s basic salary is determined by the committee each year, and when an individual changesposition or responsibility. In decidingappropriate levels, the committeeconsiders the group as a whole. Basicsalaries were reviewed in April 2006 and it was concluded that in some cases these had fallen behind what wasappropriate and that an adjustment overa period of time would be necessary.Executive directors’ contracts of service,which include details of remuneration,will be available for inspection at theAnnual General Meeting.

In addition to basic salary, the executivedirectors receive certain benefits-in-kind,principally a car and private medicalinsurance.

Annual Bonus PaymentsIn calculating the entitlement to annualbonus payments, account is taken of therelative success of the different parts ofthe business for which the executivedirectors are responsible and the extentto which the strategic objectives set bythe board are being met.

Such bonuses as were paid, were either in lieu of salary or subject to performanceconditions. In the latter case, they wereeither linked to a significant improvementin overall performance or the satisfactoryperformance of the relevant business unit.

Share OptionsIn 1996 the company established anexecutive share option scheme. Thereason for the scheme was to incentivisethe executive directors and to enablethem to benefit from the increasedmarket capitalisation of the company.The committee has responsibility forsupervising the scheme and the grant of options under its terms.

On 29 September 2006 awards weremade at a price of 397.5p per share to T D Ely (30,000 share options) and G W Fitzsimons (20,000 share options).These options are exercisable betweenSeptember 2009 and September 2016.

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To the extent that a director’s benefitsfrom a company scheme are restrictedby Inland Revenue limits, payments may be made to a funded unapprovedretirement benefit scheme.

The following executive directors do not participate in a company pensionscheme and the company has agreedinstead to make a contribution into a private scheme.

A BrannonEquivalent to 12.0% of Basic Salary.

G W FitzsimonsEquivalent to 12.5% of Basic Salary.

J S MatthewsEquivalent to 12.0% of Basic Salary.

J G Roach IIIEquivalent to US$7,500 per annum.

J S McKayEquivalent to 15.0% of Basic Salary.

M C DeanEquivalent to 15.0% of Basic Salary.

T C WongEquivalent to 10.0% of Basic Salary.

Directors’ ContractsIt is the company’s policy that executivedirectors should have contracts with an indefinite term providing for amaximum of one year’s notice.

The following executive directors have entered into service agreementswith the company, requiring notice oftermination to be given by either party.

A Brannon 12 monthsM C Dean 12 monthsT D Ely 12 monthsA J Groom 12 monthsJ S Matthews 12 monthsJ G Roach III 12 monthsJ S M Rowe 12 monthsG W Fitzsimons 6 monthsR T C Wong 6 monthsJ S McKay 3 months

In the event of early termination, the directors’ contracts provide forcompensation up to a maximum of the basic salary and in two cases,benefits, for the notice period.

Non-executive DirectorsAll non-executive directors have specific terms of engagement and their remuneration is determined by the board within the limits set by theArticles of Association and based onindependent surveys of fees paid to non-executive directors of similarcompanies. The basic fee paid to eachnon-executive director in the year was£14,000, with an additional £8,000 tothe Chairman of the Audit Committee.Non-executive directors cannotparticipate in any of the company’s shareoption schemes and are not eligible tojoin the company’s pension scheme.

AUDITED INFORMATIONCompensation of Key Management PersonnelThe remuneration of directors and other members of key management during the year was as follows:

Year ended Year ended2006 2005£000 £000

Emoluments 2,454 2,192Pension contributions 221 208

2,675 2,400

The cost to the group of share-based payments is disclosed in note 24.

Aggregate Directors’ RemunerationThe total amounts for directors’ remuneration were as follows:

Year ended Year ended2006 2005£000 £000

Emoluments 2,123 1,813Pension contributions 192 178

2,315 1,991

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Report of the Remuneration Committee (continued)

Directors’ EmolumentsBenefits

includingFees/ pension Annual 2006 2005

Basic Salary contributions bonuses total total£000 £000 £000 £000 £000

Executive Chairman:J S M Rowe 228 69 78 375 315

Executive Directors:A Brannon (appointed 5 January 2006) 140 19 – 159 –S A Clarke (resigned 31 December 2005) – – – – 221M C Dean 135 33 16 184 183T D Ely (appointed 12 October 2005) 158 37 – 195 48G W Fitzsimons (appointed 1 June 2005) 145 37 19 201 101A J Groom 186 52 67 305 265J S McKay 128 39 15 182 178J S Matthews 149 33 8 190 178J G Roach III 278 15 11 304 299T C Wong 106 43 7 156 143

Non-executive Directors:J C Hanratty 14 – – 14 14J H Howes 14 – – 14 14M A Knight 22 – – 22 18R J W Titley 14 – – 14 14

1,717 377 221 2,315 1,991

The pension entitlements of the directors were as follows:2006 2005

Money Purchase Schemes £000 £000

A Brannon 17 –S A Clarke – 26M C Dean 17 18G W Fitzsimons 18 10J S McKay 19 19J S Matthews 18 17J G Roach III 4 4T C Wong 12 11

105 105

Accrued pension Increase in accrued Accrued pension31 Dec 2005 pension in the year 31 Dec 2006

Defined Benefit Schemes £000 £000 £000

J S M Rowe 109 5 114A J Groom 83 6 89T D Ely 4 20 24

The following table sets out the transfer value of the directors’ accrued benefits under the scheme, calculated in a mannerconsistent with ‘Retirement Benefit Schemes – Transfer Values (GN11)’ published by the Institute of Actuaries and Faculty of Actuaries.

Increase inContributions transfer value

Transfer value made by the in the year net of Transfer value31 Dec 2005 director contributions 31 Dec 2006

Defined Benefit Schemes £000 £000 £000 £000

J S M Rowe 912 17 133 1,062A J Groom 636 15 114 765T D Ely 24 10 158 192

The transfer values disclosed above do not represent a sum paid or payable to the individual director. Instead they represent a potential liability of the pension scheme.

Members of the schemes have the option to pay Additional Voluntary Contributions; neither the contributions nor the resultingbenefits are included in the above tables.

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The beneficial interests of directors in the ordinary share capital of the company at 31 December 2006 and 31 December 2005were as follows:

At 31 December 2006 At 31 December 2005or on leaving or on appointment

1p ordinary shares 1p ordinary shares

J S M Rowe 333,878 0.84% 624,488 1.62%A J Groom 326,866 0.82% 476,866 1.24%T D Ely 10,656 0.03% 10,122 0.03%G W Fitzsimons 2,500 0.01% – –A Brannon 1,167,076 2.94% 912,037 2.37%M C Dean 15,825 0.04% 15,030 0.04%J S Matthews 145,861 0.37% 143,861 0.37%J S McKay 21,757 0.05% 31,757 0.08%J G Roach III 18,265 0.05% 17,386 0.05%R T C Wong 36,439 0.09% 34,439 0.09%M A Knight 8,000 0.02% 8,000 0.02%R J W Titley 6,000 0.02% 6,000 0.02%J H Howes – – – –J C Hanratty – – – –

Total of directors’ beneficial interests 2,093,123 5.28% 2,279,986 5.93%

Each director is taken to have a non-beneficial interest in the ordinary shares held by the Charles Taylor Employee Share OwnershipPlan, which amounted to 64,224 at 31 December 2006.

The following movements in options over the ordinary share capital of the company took place during the year:

Options held at Options Options Options Options Options held at Exercise31 December granted exercised lapsed cancelled 31 December price

Director 2005 during 2006 during 2006 during 2006 during 2006 2006 (pence) Exercisable Dates

J S M Rowe c 2,770 2,770 337.50 Jun 2009-Nov 2009A J Groom c 7,684 7,684 213.75 Dec 2007-May 2008A J Groom a 7,792 7,792 385.00 Apr 2004-Apr 2011A J Groom b 22,208 22,208 385.00 Apr 2004-Apr 2011M C Dean a 7,722 7,722 388.50 Mar 2004-Mar 2011M C Dean b 22,278 22,278 388.50 Mar 2004-Mar 2011M C Dean f 1,647 (1,647) – Nil Sep 2005-Sep 2009M C Dean c 2,770 2,770 337.50 Jun 2009-Nov 2009T D Ely b 7,500 7,500 216.00 Oct 2001-Oct 2008T D Ely b 10,000 10,000 385.00 Apr 2004-Apr 2011T D Ely b 14,000 14,000 277.50 Apr 2007-Apr 2014T D Ely a 7,547 7,547 397.50 Sep 2009-Sep 2016T D Ely b 22,453 22,453 397.50 Sep 2009-Sep 2016T D Ely c 2,862 2,862 337.50 Jun 2011-Nov 2011G W Fitzsimons a 7,547 7,547 397.50 Sep 2009-Sep 2016G W Fitzsimons b 12,453 12,453 397.50 Sep 2009-Sep 2016J C McKay a 7,792 7,792 385.00 Apr 2004-Apr 2011J C McKay b 12,208 12,208 385.00 Apr 2004-Apr 2011J G Roach III b 30,000 30,000 385.00 Apr 2004-Apr 2011J G Roach III e 1,664 1,664 337.50 Jul 2008-Dec 2008R T C Wong b 30,000 30,000 385.00 Apr 2004-Apr 2011R T C Wong d 2,770 2,770 337.50 Jun 2009-Nov 2009

180,831 62,836 (1,647) – – 242,020

a) Charles Taylor Executive Share Option Scheme – Part Ab) Charles Taylor Executive Share Option Scheme – Part Bc) Charles Taylor Sharesave Scheme – Part Ad) Charles Taylor Sharesave Scheme – Part Be) Charles Taylor Sharesave Scheme – Part Cf) Charles Taylor Loyalty Plan – Part B (market price at exercise date was 313.5p)

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There have been no variations to the terms and conditions or performance criteria for share options during the financial year.

There have been no changes since the year-end in the directors’ interest in either the ordinary share capital of the company oroptions over the company’s shares. The company’s shares were trading at £3.9125 at the year-end (2005 – £3.1625). They traded in the range £3.14 to £4.2175 throughout the year.

ApprovalThis report was approved by the board of directors on 19 March 2007 and signed on its behalf by:

R J W TitleyChairman of the Remuneration Committee22 March 2007

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Statement of Directors’ Responsibilities

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The directors are responsible forpreparing the Annual Report and thefinancial statements. The directors arerequired to prepare financial statementsfor the group in accordance withInternational Financial ReportingStandards (IFRS) and have also electedto prepare financial statements for thecompany in accordance with IFRS.United Kingdom company law requiresthe directors to prepare such financialstatements in accordance with IFRS, the Companies Act 1985 and Article 4 of the IAS Regulation.

International Accounting Standard 1requires that the financial statementspresent fairly for each financial year thecompany’s financial position, financialperformance and cash flows. Thisrequires the faithful representation ofthe effects of transactions, other eventsand conditions in accordance with thedefinitions and recognition criteria forassets, liabilities, income and expensesset out in the International AccountingStandards Board’s ‘Framework for thepreparation and Presentation ofFinancial Statements’. In virtually allcircumstances, a fair presentation will be achieved by compliance with allapplicable IFRS. Directors are alsorequired to:• Select and apply appropriate

accounting policies;• State whether the financial statements

have been prepared on a goingconcern basis;

• Present information, includingaccounting policies, in a manner that provides relevant, reliable,comparable and understandableinformation; and

• Provide additional disclosures when compliance with the specificrequirements in IFRS is insufficient to enable users to understand theimpact of particular transactions,other events and conditions on theentity’s financial position andfinancial performance.

The directors are responsible for keeping proper accounting recordswhich disclose with reasonable accuracyat any time the financial position of thecompany, for safeguarding the assets, for taking reasonable steps for theprevention and detection of fraud and other irregularities and for thepreparation of a directors’ report whichcomplies with the requirements of theCompanies Act 1985.

The directors are responsible for themaintenance and integrity of thecompany website. Legislation in theUnited Kingdom governing thepreparation and dissemination offinancial statements may differ fromlegislation in other jurisdictions.

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Independent Auditors’ ReportTo the Members of Charles Taylor Consulting plc

We have audited the group and parentcompany financial statements (the‘financial statements’) of Charles TaylorConsulting plc for the year ended 31 December 2006 which comprise the consolidated income statement, the consolidated and parent companybalance sheets, the consolidated andparent company cash flow statements,the consolidated statement ofrecognised income and expenses andthe related notes 1 to 32. These financialstatements have been prepared underthe accounting policies set out therein.We have also audited the information in the directors’ remuneration reportthat is described as having been audited.

This report is made solely to thecompany’s members, as a body, inaccordance with section 235 of theCompanies Act 1985. Our audit work hasbeen undertaken so that we might stateto the company’s members those matterswe are required to state to them in anauditors’ report and for no other purpose.To the fullest extent permitted by law, wedo not accept or assume responsibilityto anyone other than the company andthe company’s members as a body, forour audit work, for this report, or for the opinions we have formed.

Respective Responsibilities of Directorsand AuditorsThe directors’ responsibilities forpreparing the annual report, the directors’remuneration report and the financialstatements in accordance with applicablelaw and International Financial ReportingStandards (IFRSs) as adopted by theEuropean Union are set out in thestatement of directors’ responsibilities.

Our responsibility is to audit the financialstatements and the part of the directors’remuneration report to be audited inaccordance with relevant legal andregulatory requirements and InternationalStandards on Auditing (UK and Ireland).

We report to you our opinion as towhether the financial statements give a true and fair view and whether thefinancial statements and the part of thedirectors’ remuneration report to beaudited have been properly prepared in accordance with the Companies Act1985 and, as regards the group financialstatements, Article 4 of the IASRegulation. We also report to youwhether in our opinion the informationgiven in the director’s report isconsistent with the financial statements.

sufficient evidence to give reasonableassurance that the financial statementsand the part of the directors’remuneration report to be audited are free from material misstatement,whether caused by fraud or otherirregularity or error. In forming ouropinion we also evaluated the overalladequacy of the presentation ofinformation in the financial statementsand the part of the directors’remuneration report to be audited.

OpinionIn our opinion:• the group financial statements give a

true and fair view, in accordance withIFRSs as adopted by the EuropeanUnion, of the state of the group’saffairs as at 31 December 2006 and of its profit for the year then ended;

• the parent company financialstatements give a true and fair view, in accordance with IFRSs as adoptedby the European Union as applied inaccordance with the provision of theCompanies Act 1985, of the state ofthe parent company’s affairs as at 31 December 2006;

• the financial statements and the partof the directors’ remuneration reportto be audited have been properlyprepared in accordance with theCompanies Act 1985 and, as regardsthe group financial statements, Article4 of the IAS Regulation; and

• the information given in the directors’report is consistent with the financialstatements.

Separate Opinion in Relation to IFRSAs explained in Note 1 to the financialstatements, the group, in addition tocomplying with its legal obligation tocomply with IFRSs as adopted for use in the European Union, has alsocomplied with the IFRSs as issued by the International Accounting StandardsBoard. Accordingly, in our opinion thefinancial statements give a true and fair view, in accordance with IFRSs, of the state of the group’s affairs as at 31 December 2006 and of its profit forthe year then ended.

Deloitte & Touche LLPChartered Accountants and RegisteredAuditorsLondon22 March 2007

In addition we report to you if, in ouropinion, the company has not keptproper accounting records, if we havenot received all the information andexplanations we require for our audit, orif information specified by law regardingdirectors’ remuneration and othertransactions is not disclosed.

We review whether the corporategovernance statement reflects thecompany’s compliance with the nineprovisions of the 2003 Combined Codespecified for our review by the ListingRules of the Financial Services Authority,and we report if it does not. We are notrequired to consider whether the board’sstatements on internal control cover allrisks and controls, or form an opinionon the effectiveness of the group’scorporate governance procedures or its risk and control procedures.

We read the other informationcontained in the annual report asdescribed in the contents section andconsider whether it is consistent withthe audited financial statements. Theinformation given in the Directors’Report includes that specific informationpresented in the Business Review that is cross referenced from the PrincipalActivities and Business Review section of the Directors’ Report. We consider theimplications for our report if we becomeaware of any apparent misstatements or material inconsistencies with thefinancial statements. Our responsibilitiesdo not extend to any furtherinformation outside the Annual Report.

Basis of Audit OpinionWe conducted our audit in accordancewith International Standards onAuditing (UK and Ireland) issued by the Auditing Practices Board. An auditincludes examination, on a test basis, of evidence relevant to the amounts anddisclosures in the financial statementsand the part of the directors’remuneration report to be audited. It also includes an assessment of thesignificant estimates and judgementsmade by the directors in the preparationof the financial statements, and ofwhether the accounting policies areappropriate to the group’s andcompany’s circumstances, consistentlyapplied and adequately disclosed.

We planned and performed our audit so as to obtain all the information andexplanations which we considerednecessary in order to provide us with

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Financial Statements

21 Financial Statements

22 Consolidated Income Statement

23 Consolidated Balance Sheet

24 Company Balance Sheet

25 Cash Flow Statements

26 Consolidated Statement of Recognised Income and Expense

27 Notes to the Financial Statements

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Year to Year to 31 December 31 December

2006 2005Note £000 £000

Continuing operationsRevenue 73,581 67,330

Revenue from insurance contracts acquired 8,059 592Outward reinsurance premiums (2,527) (242)

________ ________Net revenue from insurance contracts acquired 27 5,532 350

Total revenue 3 79,113 67,680

Claims from insurance contracts acquired (31,999) (1,603)Reinsurance recoveries 9,128 1,628Expenses of managing insurance companies (10,614) (314)Investment and other income from insurance activities 28,952 564

_______ ________Net expenses and other income from insurance contracts acquired (4,533) 275

Amounts written off goodwill 4 (1,100) –Administrative expenses 4 (59,567) (56,812)Share of results of associates 127 139Share of results of joint ventures 139 97

________ ________Profit from insurance contracts acquired 27 999 625

________ ________Profit from other activities 13,180 10,754

________ ________Total profit from operations 14,179 11,379

Investment and other income from non-insurance activities 6 1,091 580Finance costs 7 (3,114) (1,534)

________ ________Profit before tax 12,156 10,425Income tax expense 8 (1,041) (398)

________ ________Profit for the year from continuing operations 11,115 10,027

________ ________

Attributable to:Equity holders of the parent 11,027 9,915Minority interest 88 112

________ ________11,115 10,027

________ ________

Earnings per share from continuing operations

Basic (p) 11 28.14 27.45________ ________

Diluted (p) 11 27.96 27.27________ ________

Basic adjusted (p) 11 31.30 27.45________ ________

Diluted adjusted (p) 11 31.10 27.27________ ________

Consolidated Income Statement For the year ended 31 December 2006

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Consolidated Balance SheetAt 31 December 2006

At 31 December At 31 December2006 2005

Note £000 £000

Non-current assetsGoodwill 13 38,742 39,047Intangible assets 14 10,617 13,567Property, plant and equipment 15 4,160 4,392Interests in associates 16 926 883Interests in joint ventures 16 543 517Investments 16 31 31Deferred tax assets 17 6,299 7,652

________ ________61,318 66,089

________ ________Current assetsTotal assets in insurance businesses 27 324,976 405,792Trade and other receivables 18 44,834 46,764Cash and cash equivalents 30,922 31,828

________ ________400,732 484,384________ ________

Total assets 462,050 550,473________ ________

Current liabilitiesTotal liabilities in insurance businesses 27 312,048 391,083Trade and other payables 19 17,221 23,263Tax liabilities 2,153 888Obligations under finance leases 20 149 115Bank overdrafts and loans 20 18,888 17,718Client funds 20 20,790 25,100

________ ________371,249 458,167________ ________

Net current assets 29,483 26,217________ ________

Non-current liabilitiesBank loans 20 26,282 33,385Retirement benefit obligation 30 19,609 24,159Provisions 21 2,597 4,229Obligations under finance leases 20 280 206Deferred consideration – LCL acquisition 12 6,174 7,369Deferred consideration – other 12 430 –

________ ________55,372 69,348

________ ________Total liabilities 426,621 527,515

________ ________

Net assets 35,429 22,958________ ________

EquityShare capital 22 397 384Share premium account 23 28,824 24,979Merger reserve 23 6,872 6,872Capital reserve 23 662 662Own shares 23 (211) (1,501)Retained earnings 23 (1,804) (8,731)

________ ________Equity attributable to equity holders of the parent 34,740 22,665Minority interest 23 689 293

________ ________Total equity 35,429 22,958

________ ________

The financial statements were approved by the board of directors and authorised for issue on 22 March 2007.

George FitzsimonsDirector22 March 2007

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Company Balance SheetAt 31 December 2006

At 31 December At 31 December2006 2005

Notes £000 £000

Non-current assetsInvestments 16 76,012 75,322

_________ _________

Current assetsTrade and other receivables 18 33,657 34,796Cash and cash equivalents 646 197

_________ _________34,303 34,993

_________ _________Total assets 110,315 110,315

_________ _________

Current liabilitiesTrade and other payables 19 29,673 19,440Bank overdrafts and loans 20 9,650 9,815

_________ _________39,323 29,255

_________ _________Net current (liabilities)/assets (5,020) 5,738

_________ _________Non-current liabilitiesBank loans 20 25,813 33,385Deferred consideration – LCL acquisition 12 6,174 7,369

_________ _________31,987 40,754

_________ _________Total liabilities 71,310 70,009

_________ _________Net assets 39,005 40,306

_________ __________Capital and reservesCalled up share capital 22 397 384Share premium account 23 28,824 24,979Retained earnings 23 9,784 14,943

_________ _________Total equity 39,005 40,306

_________ __________

The financial statements were approved by the board of directors and authorised for issue on 22 March 2007.

George FitzsimonsDirector22 March 2007

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Cash Flow StatementsFor the year ended 31 December 2006


2006 2005Note £000 £000

GroupNet cash from operating activities 29 14,623 14,765

Investing activitiesInterest received 681 317Proceeds on disposal of property, plant and equipment 240 115Purchases of property, plant and equipment (1,273) (976)Acquisition of intangible assets (782) (784)Purchases of investments (77) (9)Proceeds from sale of investments 1,568 232Acquisition of subsidiaries (2,562) (27,887)Payment of deferred consideration obligation acquired with LCL companies (2,926) –Net cash acquired with subsidiary 155 2,032

________ ________Net cash used in investing activities (4,976) (26,960)

________ ________

Financing activitiesProceeds from issue of shares 375 494Dividends paid (4,083) (3,371)Repayments of borrowings (11,666) (4,093)Repayments of obligations under finance leases (154) (140)New bank loans raised 1,468 30,706Increase/(decrease) in bank overdrafts 4,466 (4,065)

________ ________Net cash (used in)/from financing activities (9,594) 19,531

________ ________Net increase in cash and cash equivalents 53 7,336Cash and cash equivalents at beginning of year 31,828 24,222Effect of foreign exchange rate changes (959) 270

________ ________Cash and cash equivalents at end of year 30,922 31,828

________ ________

CompanyNet cash from operating activities 29 11,746 (15,355)

Investing activitiesInterest received 523 225Dividends received – 17,277Acquisition of subsidiary (357) (27,887)

________ ________Net cash from/(used in) investing activities 166 (10,385)

________ ________

Financing activitiesProceeds from issue of shares 375 494Dividends paid (4,083) (3,371)Repayments of borrowings (6,513) (4,093)New bank loans raised – 30,706(Decrease)/increase in bank overdrafts (1,130) 1,943

________ ________Net cash (used in)/from financing activities (11,351) 25,679

________ ________Net increase/(decrease) in cash and cash equivalents 561 (61)Cash and cash equivalents at beginning of year 197 31Effect of foreign exchange rate changes (112) 227

________ ________Cash and cash equivalents at end of year 646 197

________ ________


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Consolidated Statement of Recognised Income and ExpenseFor the year ended 31 December 2006


2006 2005£000 £000

Unrealised (losses)/gains on available-for-sale investments (1,069) 372Exchange differences on translation of foreign operations 1,308 766Actuarial gains on defined benefit pension schemes 4,107 1,437Tax on items taken directly to equity (1,371) (431)

________ ________Net income recognised directly in equity 2,975 2,144

________ ________Profit for the year 7,032 6,656

________ ________Total recognised income and expense for the year 10,007 8,800

________ ________Attributable to:Equity holders of the parent 9,919 8,688Minority interests 88 112

________ ________10,007 8,800

________ ________

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Notes to the Financial StatementsFor the year ended 31 December 2006

1. Accounting policiesBasis of accountingThese financial statements have been prepared in accordance with applicable International Financial Reporting Standards (IFRS)effective for 31 December 2006 year-ends.

The financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore thegroup financial statements comply with Article 4 of the EU IAS Regulation.

The accounting policies below are structured as follows:

(a) Basis of consolidation(b) Group-wide policies(c) Accounting for insurance contracts and investment contracts business

(i) Non-life business(ii) Life business

The financial statements have been prepared on the historical cost basis, except for the revaluation of certain financialinstruments.

(a) Basis of consolidationThe consolidated financial statements incorporate the financial statements of the company and entities controlled by thecompany (its subsidiaries) made up to 31 December each year. Control is achieved where the company has the power to governthe financial and operating policies of an investee entity so as to obtain benefits from its activities.

The company owns a number of insurance companies. The assets of the insurance companies are held for the benefit of thepolicyholders in the first instance and the group’s interest is restricted to income from managing these businesses and a share inany surplus after deferred consideration payments to the former owners. Consequently, although fully consolidated, the assets andliabilities relating to insurance companies are separately identified in these financial statements.

Similarly, the income and expense items relating to insurance contracts are grouped together in the consolidated incomestatement because most are related, for example claims and related insurance recoveries and to distinguish them from the group’smain activities.

The analysis between current and non-current assets and liabilities is not useful for insurance companies. The assets and liabilitiesof the insurance companies have been classified as current rather than non-current for practical purposes and to conform with thepresentation used in these financial statements although in practice an element is expected to be settled in more than one year.

The interest of minority shareholders is stated at the minority’s proportion of the fair values of the assets and liabilities recognised.Subsequently, any losses applicable to the minority interest in excess of the minority interest are allocated against the interests ofthe parent.

The results of subsidiaries acquired or disposed of during the period are included in the consolidated income statement from theeffective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into linewith those used by the group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Investments in associates and joint venturesAn associate is an entity over which the group is in a position to exercise significant influence, but not control or joint control,through participation in the financial and operating policy decisions of the investee.

A joint venture is a contractual arrangement whereby the group, with one or more parties, undertakes an economic activity that is subject to joint control.

The results and assets and liabilities of associates and joint ventures are incorporated in these financial statements using the equitymethod of accounting. Investments in associates and joint ventures are carried in the balance sheet at cost as adjusted by post-acquisition changes in the group’s share of the net assets of the associate or joint venture, less any impairment in the value ofindividual investments. Losses of the associates or joint ventures in excess of the group’s interest in those associates or jointventures are not recognised.

Where a group company transacts with an associate or joint venture of the group, profits and losses are eliminated to the extent of the group’s interest in the relevant associate or joint venture. Losses may provide evidence of an impairment of the assettransferred in which case appropriate provision is made for impairment.


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1. Accounting policies (continued)(b) Group-wide policiesGoodwillGoodwill arising on consolidation represents the excess of the cost of acquisition over the group’s interest in the fair value of theidentifiable assets and liabilities of a subsidiary at the date of acquisition.

On acquisition, the assets and liabilities and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable net assets acquired is recognised asgoodwill. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount onacquisition) is credited to profit and loss in the period of acquisition.

Goodwill is recognised as an asset and reviewed for impairment annually and for new acquisitions in the year of acquisition, or more frequently if there are indications that goodwill might be impaired. Any impairment is recognised immediately in profit or loss and is not subsequently reversed.

On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

Goodwill arising on acquisitions before the date of transition to IFRS has been retained at the previous UK GAAP amounts subjectto being tested for impairment at that date.

Revenue recognitionRevenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for servicesprovided in the normal course of business, net of discounts, VAT and other sales-related taxes.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.

Foreign currencies The individual financial statements of each group company are presented in the currency of the primary economic environmentin which it operates (its functional currency). For the purposes of the consolidated financial statements, the results and financialposition of each group company are expressed in pounds sterling, which is the functional currency of the company, and thepresentation currency for the consolidated financial statements.

Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing on the dates of thetransactions. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslatedat the rates prevailing on the balance sheet date. Non-monetary assets and liabilities carried at fair value that are denominated inforeign currencies are translated at the rates prevailing at the date when the fair value was determined. Gains and losses arising onretranslation are included in net profit or loss for the period, except for exchange differences arising on non-monetary assets andliabilities where the changes in fair value are recognised directly in equity.

In order to hedge its exposure to certain foreign exchange risks, the group enters into forward contracts (see below for details of the group’s accounting policies in respect of such derivative financial instruments).

On consolidation, the assets and liabilities of the group’s overseas operations are translated at exchange rates prevailing on thebalance sheet date. Income and expense items are translated at the average exchange rates for the period unless exchange ratesfluctuate significantly. Exchange differences arising, if any, are classified as equity and transferred to the group’s profit and lossreserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreignentity and translated at the closing rate. The group has elected to treat goodwill and fair value adjustments arising on acquisitionsbefore the date of transition to IFRS as sterling-denominated assets and liabilities.

Retirement benefit costs Amounts payable to defined contribution retirement benefit schemes are charged as an expense as they fall due. Payments madeto state-managed retirement benefit schemes are dealt with as payments to defined contribution schemes where the group’sobligations under the schemes are equivalent to those arising in a defined contribution retirement benefit scheme.

For defined benefit retirement benefit schemes, the cost of providing benefits is determined using the Projected Unit Credit Method,with actuarial valuations being carried out at each balance sheet date. Actuarial gains and losses are recognised in full in the periodin which they occur. They are recognised outside the Income Statement and presented in the Statement of Recognised Income andExpense (SORIE).

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Notes to the Financial Statements (continued)For the year ended 31 December 2006


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1. Accounting policies (continued)Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the benefits become vested.

The retirement benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation asadjusted for unrecognised past service cost, and as reduced by the fair value of scheme assets. Any asset resulting from this calculationis limited to past service cost, plus the present value of available refunds and reductions in future contributions to the plan.

Share-based paymentsThe group issues equity-settled share-based payments to certain employees. There is an Executive scheme for senior employeesand a Sharesave scheme open to all qualifying employees. Equity-settled share-based payments are measured at fair value at thedate of grant. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on thegroup’s estimate of shares that will eventually vest. An amount equivalent to the profit and loss account charge is credited to theprofit and loss account reserve at date of grant.

Fair value is measured by use of the Black-Scholes-Merton pricing model. The expected option life used in the model is based on management’s best estimate, taking behavioural considerations into account.

Profit from operationsProfit from operations is stated after the share of results of associates and joint ventures but before investment income and finance costs.

TaxationThe tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the incomestatement because it excludes items of income or expense that are taxable or deductible in other years and it further excludesitems that are never taxable or deductible. The group’s liability for current tax is calculated using tax rates that have been enactedor substantively enacted by the balance sheet date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for usingthe balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences anddeferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductibletemporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwillor from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affectsneither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, andinterests in joint ventures, except where the group is able to control the reversal of the temporary difference and it is probable thatthe temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longerprobable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset isrealised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Property, plant and equipmentProperty, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss.

Depreciation is charged so as to write off the cost or valuation of assets, other than land, over their estimated useful lives, usingthe straight-line method, at the following annual rates:Buildings 2.5%Fixtures and equipment 20%-25%Aircraft 10%Leasehold buildings Over the lease termComputers 25%Motor vehicles 25%

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, whereshorter, over the term of the relevant lease.

The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income.


30

1. Accounting policies (continued)Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Assets held under finance leases are recognised as assets of the group at their fair value or, if lower, at the present value of theminimum lease payments, each determined at the inception of the lease. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of thelease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are chargeddirectly against income.

Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.

Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term.

Intangible assetsAn internally-generated intangible asset is recognised only if all of the following conditions are met:• an asset is created that can be identified (such as software and new processes);• it is probable that the asset created will generate future economic benefits; and• the development cost of the asset can be measured reliably.

The value of customer relationships is measured and recorded as an intangible asset when businesses are acquired.

Intangible assets are recorded net of contributions to their cost from third parties and are amortised on a straight-line basis overtheir useful lives or in line with anticipated cash flows.

Impairment of tangible and intangible assets excluding goodwillAt each balance sheet date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether thereis any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of theasset is estimated in order to determine the extent of the impairment loss (if any). Where the asset does not generate cash flowsthat are independent from other assets, the group estimates the recoverable amount of the cash-generating unit to which the assetbelongs. An intangible asset with an indefinite useful life is tested for impairment annually and whenever there is an indicationthat the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated futurecash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the timevalue of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carryingamount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised as an expenseimmediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as arevaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to therevised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount thatwould have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversalof an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which casethe reversal of the impairment loss is treated as a revaluation increase.

Financial instrumentsFinancial assets and financial liabilities are recognised on the group’s balance sheet when the group becomes a party to thecontractual provisions of the instrument.

Trade receivablesTrade receivables are measured on initial recognition at fair value. Trade receivables do not carry any interest. Appropriate allowancesfor estimated irrecoverable amounts are recognised in the profit or loss when there is objective evidence that the asset is impaired.

InvestmentsInvestments are recognised and derecognised on a trade date where a purchase or sale of an investment is under a contract whoseterms require delivery of the investment within the timeframe established by the market concerned, and are initially measured atfair value, including transaction costs.

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1. Accounting policies (continued)At subsequent reporting dates, debt securities that the group has the expressed intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortised cost using the effective interest rate method, less any impairment loss recognised to reflect irrecoverable amounts. An impairment loss is recognised in profit or loss where there is objectiveevidence that the asset is impaired, and is measured as the difference between the investment’s carrying amount and the presentvalue of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Impairment losses arereversed in subsequent periods when an increase in the investment’s recoverable amount can be related objectively to an eventoccurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the datethe impairment is reversed shall not exceed what the amortised cost would have been had the impairment not been recognised.

Other investments are classified as either at fair value through profit and loss or available-for-sale, and are measured at subsequentreporting dates at fair value. Where securities are held at fair value, gains and losses arising from changes in fair value are includedin net profit or loss for the period. For available-for-sale investments, gains and losses arising from changes in fair value arerecognised directly in equity, until the security is disposed of or is determined to be impaired, at which time the cumulative gainor loss previously recognised in equity is included in the net profit or loss for the period. Impairment losses recognised in profit orloss for equity investments classified as available-for-sale are not subsequently reversed through profit or loss. Impairment lossesrecognised in profit or loss for debt instruments classified as available-for-sale are subsequently reversed if an increase in the fairvalue of the instrument can be objectively related to an event occurring after the recognition of the impairment loss.

Cash and cash equivalentsCash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments that arereadily convertable to a known amount of cash and are subject to an insignificant risk of changes in value. Amounts of this natureheld in insurance companies have been shown within assets in insurance businesses and are not generally available for use by the group.

Client funds under group control outside the insurance companies are included in the balance sheet under cash and cashequivalents with a corresponding liability recognised and are also not available for use by the group.

Financial liability and equityFinancial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into.An equity instrument is any contract that evidences a residual interest in the assets of the group after deducting all of its liabilities.

Bank borrowingsInterest-bearing bank loans and overdrafts are initially measured at fair value. Finance charges, including premiums payable onsettlement or redemption and direct issue costs, are accounted for on an accrual basis to the profit and loss account using theeffective interest method and are added to the carrying amount of the instrument to the extent that they are not settled in theperiod in which they arise.

Trade payablesTrade payables are initially measured at fair value. They are not interest-bearing.

Equity instrumentsEquity instruments issued by the company are recorded at the proceeds received, net of direct issue costs.

Derivative financial instruments and hedge accountingThe group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates. The group uses foreign exchange forward contracts to hedge these exposures. The group does not use derivative financialinstruments for speculative purposes.

Changes in the fair value of derivative financial instruments that do not qualify for hedge accounting are recognised in the incomestatement as they arise.

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifiesfor hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained inequity until the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to net profit or loss for the period. There were no derivatives that qualified for hedgeaccounting during the period.


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1. Accounting policies (continued)(c) Accounting for insurance contracts and investment contracts businesses(i) Non-life businessRevenue from insurance contractsRevenue from insurance contracts represents premiums earned. Premiums are earned pro rata on a time apportioned basis.Unearned premiums, representing unexpired periods of indemnity, are deferred and included in the balance sheet as a liabilityunder insurance technical balances. The treatment of associated acquisition costs and reinsurance premiums follows that of theunderlying premium. If it is likely that the unearned premium will not be sufficient to cover future losses, then further provision is made.

ClaimsClaims incurred comprise claims and related expenses paid in the year and changes in the provision for outstanding claims. The treatment of associated reinsurance recoveries follows that of the underlying claim.

Insurance technical provisionsThese include outstanding claim provisions and unearned premium as liabilities and their associated reinsurance recoveries as assets, as well as any deferred acquisition costs.

Outstanding claims provisionsProvision is made at the year-end for the estimated cost of claims incurred but not settled at the balance sheet date, including thecost of claims incurred but not yet reported to the group. The estimated cost of claims includes expenses to be incurred in settlingclaims and a deduction for the expected value of salvage and other recoveries. The group takes all reasonable steps to ensure thatit has appropriate information regarding its claims exposures. However, given the uncertainty in establishing claims provisions, it is likely that the final outcome will prove to be different from the original liability established.

The estimation of claims incurred but not reported (‘IBNR’) is generally subject to a greater degree of uncertainty than theestimation of claims already notified to the group.

In calculating the estimated cost of unpaid claims the group uses a variety of estimation techniques, generally based uponstatistical analyses of historical experience, which assumes that the development pattern of the current claims will be consistentwith past experience. Allowance is made, however, for changes or uncertainties which may create distortions in the underlyingstatistics or which might cause the cost of unsettled claims to increase or reduce when compared with the cost of previouslysettled claims including: • changes in company processes which might accelerate or slow down the development and/or recording of paid or incurred

claims compared with the statistics from previous periods• changes in the legal environment• the effects of inflation• changes in the mix of business• the impact of large losses• movements in industry benchmarks

Large claims impacting each relevant business class are generally assessed separately, being measured on a case-by-case basis orprojected separately in order to allow for the possible distorting effect of the development and incidence of these large claims.

Provisions are calculated gross of any reinsurance recoveries. Potential reinsurance recoveries are calculated as a function of claims, and shown separately in the balance sheet as ‘amounts receivable under reinsurance contracts’.

The group assesses its reinsurance assets for impairment on a quarterly basis. If there is objective evidence that the reinsuranceasset is impaired, the group reduces the carrying amount of the reinsurance asset to its recoverable amount and recognises thatimpairment loss in the income statement for the period.


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1. Accounting policies (continued)Receivables and payables related to insurance contractsReceivables and payables are recognised when due. These include amounts due to and from agents, brokers and insurancecontract holders.

If there is objective evidence that the insurance receivable is impaired, the group reduces the carrying amount of the insurancereceivable accordingly and recognises that impairment loss in the income statement for the period.

Provision for future expensesProvision is made for the cost of running off the group’s insurance business based on best estimates of the costs expected to be incurred.

(ii) Life businessInsurance and investment contracts – classificationThe group owns contracts that transfer insurance risk or financial risk or both.

Insurance contracts are those contracts that transfer significant insurance risk. Such contracts may also transfer financial risk. As ageneral guideline, the group defines as significant insurance risk the possibility of having to pay benefits on the occurrence of aninsured event that are at least 10% more than the benefits payable if the insured event did not occur. The majority of the insurancerisk arises on contracts where optional insurance benefits were applied for at outset by the insured. The group practice is to treatthe insurance element as a separate unbundled contract.

Investment contracts are those contracts that transfer financial risk with no significant insurance risk.

Further contract distinctions are ‘Unit Linked’ and ‘Discretionary Participation Features’ (DPF). Unit-linked contracts are thoselinked to specific assets, such that the value of contracts moves in line with the value of assets. DPF contracts are those where the policy holders may receive a bonus, generally based on investment performance. Unit and non-unit linked policies may haveDPF or not.

Revenue recognitionFor investment contracts amounts collected as ‘premiums’ are not included in the income statement. They are reported as depositsin the balance sheet (under investment contract assets).

Insurance premiums on insurance policies and fees charged on investment contracts are included as revenue in the incomestatement and are recognised as services are provided.

ClaimsClaims under insurance contracts are recognised when payments are due. Claims costs include claims handling costs.

‘Claims’ under investment contracts are not reflected in the income statement. They are deducted from investment contractliabilities in the balance sheet.

Provisions for liabilitiesThe provisions for insurance contract liabilities are established using methods and assumptions approved by management basedon advice from actuaries. This is based initially on the reserves required for regulatory purposes and adjusted to eliminateundistributed surplus income and various regulatory or contingency reserves. This basis is commonly referred to as the ‘modifiedstatutory solvency basis’. Provisions are shown gross of reinsurance recoveries.

Investment contracts consist mainly of unit-linked contracts. Unit-linked liabilities are determined by reference to the value of theunderlying matched assets.

Value of business acquiredOn acquisition of a portfolio of contracts, either directly from another insurer or through the acquisition of a subsidiary, the group recognises an intangible asset representing the value of business acquired (VOBA). VOBA represents the present value of future profits embedded in acquired contracts. The group amortises VOBA over the effective life of the acquired contracts.


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2. Accounting judgements and management of risksCritical areas of management judgement and estimationThe following areas are considered the most significant in the preparation of these financial statements where the application of management judgement or estimation has been required.

Revenue recognition in the Services businessesRevenue is recognised when there is a contractual right to be paid in relation to past performance of contractual obligations. Inpractice the group maintains time recording systems to capture time chargeable to clients and specified hourly rates are ascribedto the hours recorded by case handlers. Hourly rates are usually agreed in advance in the form of pre-engagement contractualterms or are based on standard hourly rates applicable to the type of work and country in which the work is performed.

Regular periodic reviews are performed by case handlers, and by management, to ensure the carrying value of work on unfinishedcases reflects management’s view of its ultimately realisable value. Provisions against irrecoverable work-in-progress and outstandingfees are made where the realisable value is expected to be lower than the carrying value and conversely upwards revaluations ofwork-in-progress are made where management considers the carrying value is lower than the amount ultimately recoverable.

Fair valuation of acquisitionsThe group has included the assets and liabilities of the entities acquired during the period in its consolidated balance sheet at thedate of acquisition at their fair values. The fair values of assets and liabilities acquired are different in a number of instances fromthe values shown in the entities’ own financial statements due to the application of different accounting policies in these financialstatements or the application of fair valuation principles to assets recorded and liabilities recorded by the entities under otherbases such as historical cost.

Impairment of goodwillGoodwill has arisen in relation to the group’s acquisitions of subsidiaries and is represented by the difference between theestimated cost of the acquisitions and the fair value of the net assets acquired in those acquisitions. The company is required to assess annually, or more often if there is an indication of impairment, the carrying value of goodwill. It does this by assessingthe future cash flows generated by the business units to which the goodwill has been allocated and by discounting those cashflows to assess whether the discounted value is higher or lower than the carrying value of the related goodwill. Managementjudgement is applied, in particular, in the initial allocation of goodwill to cash-generating units, in assessing future cash flows and in determining appropriate discount rates.

Insurance reservesInsurance reserves are set to reflect management’s best estimate of the ultimate cost of settling claims incurred under insurancepolicies previously written by the insurance companies acquired. A number of actuarial estimation techniques have been used inarriving at the insurance reserves recorded in these financial statements. Further details are given in the accounting policies sectionabove.

PensionsThe group sponsors a number of defined benefit retirement schemes for employees. The scheme assets and the obligation toprovide future benefits are included in the group balance sheet. The cost of providing benefits to employees is reflected as a charge in the group income statement. The respective scheme actuaries are engaged by the company to assist management in determining the amounts to be recorded in these financial statements. In this regard management is responsible for determiningthe assumptions to be used in the actuarial calculations such the expected return on plan assets, salary growth and inflation. Further details of the assumptions used are given in note 30.

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2. Accounting judgements and management of risks (continued)Management of riskLegal and regulatory riskA variety of legislation and regulation governs a wide number of the group’s businesses. Future changes in regulation are difficultto predict and their impact may be difficult to mitigate and give rise to additional compliance costs.

The group also relies on continuing regulatory approval to carry on various parts of its business. Non-compliance with regulationcould give rise to fines or restrictions on approvals which might impair the group’s profitability or financial position.

Commercial risksWhile affected by the insurance cycle, the group’s business portfolio is designed to limit its impact. However, the revenue ofadjusting businesses is always subject to levels of loss in the market generally as well as to the group’s market share, and loss ratescan fluctuate from year to year on a random basis. Resource levels are as far as possible planned to accommodate suchfluctuations and safeguard profitability.

Failure to carry out the provision of services with care and efficiency could cause financial loss through the loss of contracts orclaims for damages. The group’s professional indemnity policy provides some protection against this and there are comprehensivepolicies, procedures and training to minimise the risk.

Various business continuity risks exist which are explained on page 13 in the Corporate Governance Report.

The group depends on its Information Technology systems to support the management of its own and its Mutual clients’businesses. Failure of these systems could cause financial loss. To manage the risk, systems development is carefully controlled and there are appropriate support arrangements and business continuity plans.

The group’s cash flow depends on its ability to recover its fees from the world’s insurance markets. The complexities of thesubscription market, the geographical spread and the involvement of reinsurers all contribute to the risks of speed and reliabilityof collection. In addition, the group is exposed to credit risk in relation to the ability of insurers to meet large losses and fees.Credit management processes are supported by a variety of management, reporting and IT systems to reduce the risk.

The group employs highly specialist senior staff who are difficult to replace and their loss might result in adverse financialconsequences for the group. Suitable measures exist to encourage staff retention, for example relating to career opportunities,remuneration and working conditions.

The group is vulnerable to adverse market perception as it operates in highly competitive markets where quality of service andintegrity are regarded as important benchmarks by both clients and regulators. Mismanagement, fraud or failure to satisfy fiduciaryor regulatory responsibilities, the negative publicity resulting from this or the accusation by a third-party of such activities couldhave a material adverse impact on the group. The group has a variety of risk management processes to reduce the likelihood ofsuch occurrences.

The group’s financial risks emanate from its cash, liquid resources and items such as trade debtors and trade creditors that arisedirectly from its operations. These arise in various currencies. The detailed disclosures required on financial instruments in thegroup’s main businesses are disclosed in note 25. Disclosures in relation to in the insurance companies are disclosed in note 27.

There are risks of non-compliance with banking covenants, which are dealt with by monitoring and by managing cash inflow and outflow.

Tax and accounting risksThe group cannot predict or control changes in tax legislation in the jurisdictions in which it operates. However, it intends toconduct its affairs in a tax-efficient manner and takes relevant professional advice where appropriate. There are also risks relatingto the potential for increased tax charges arising from errors or changes in the interpretation of taxation rates or law. These risksare addressed by appropriate staffing, training and professional advice.

In common with other listed companies in the UK and Europe, the group has implemented International Financial ReportingStandards (IFRS). IFRS for insurance contracts are being implemented by a two-stage process, of which only the standards for stageone have been agreed. Changes in standards and their interpretation and application could have a negative effect on the group.Risks in this respect are being managed by appropriate staffing, training and professional advice.

Pensions risksThere are risks inherent in the group’s four defined benefit pension schemes. The level of scheme funding required depends on a number of factors, including future investment performance, life expectancy and the accuracy of various actuarial assumptions. If these factors are unfavourable, the level of funding required by the group may increase. In addition, the implementation of thenew Statutory Funding Objective for valuations after 23 September 2005 could result in a higher level of funding being agreedbetween the group and scheme trustees. The Pensions Regulator also has powers to require higher levels of employer contribution.These risks are being managed by continual consideration of the implications of new legislation, taking professional advice,training and maintaining the dialogue between employer and trustees.


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2. Accounting judgements and management of risks (continued)Future acquisitionsOne of the principal strategies of the group is to make further value-enhancing insurance run-off acquisitions which provide theopportunity to generate fees for providing run-off services. If the group were unable to achieve this aim, for example because ofinsufficient financial resources, excessive competition for acquisition targets or regulatory change, this could delay or prevent theachievement of this expected benefit and adversely affect the group’s future financial prospects. The group expends significantmanagement time on activities designed to reduce the risk of this outcome.

Insurance risksThe risks to the group from the acquired insurance businesses are believed to be low. In addition to the protection provided by the risk management processes within the businesses themselves, the group has no obligation to pay consideration for any of theinsurance entities unless they generate distributable profits. The group has advanced £5,000,000 of interest-bearing consideration to the vendors of LCL in relation to insurance businesses but consideration is recoverable in the event and to the extent that£5,000,000 of adjusted distributable reserves plus interest is not generated within 20 years from completion and no furthercontingent consideration is payable until that sum has been generated.

(i) Life businessThe gross liabilities and net assets of the life businesses are £224,090,000 (2005 – £271,522,000) and £10,699,000 (2005 – £10,871,000) respectively.

Asset management, risk benefit and fixed policy charges arising from the existing portfolio of business are the primary source of revenue, although the majority of the risk benefit charges are passed on through reinsurance arrangements.

Risk exposures are regularly assessed for probability of occurrence and for severity. The group aims to generate earnings from theadministration of the portfolio rather than from significant risk retention and processes are in place to limit risk exposures. Only a small proportion of the risk benefit insurance risks and discretionary participation investment risks are retained. Investment andcredit risks are limited as the majority of the policyholder liabilities are directly linked to the value of the investments held.

The deferred consideration payable to the former owners of LCL International Life Assurance Company Limited arising from its saleto LCL Acquisitions Limited was settled in full during the period.

To maximise capital efficiency and to reduce operational costs and risks the previous owners initiated an amalgamation processduring 2005. This process was concluded on 31 March 2006 with all policies being transferred into a single entity.

(ii) Non-life businessThe gross liabilities and net shareholder assets of the combined non-life businesses, Bestpark International Ltd and AssociatedInternational Insurance (Bermuda) Ltd, are £87,958,000 (2005 – £119,561,000) and £2,229,000 (2005 – £3,838,000) respectively.

The non-life businesses underwrote a variety of risks, but the remaining liability is predominantly third-party liability, professionalindemnity, particularly with regard to financial institutions, and reinsurance. There is also a substantial potential liability arisingfrom latent defect policies on building construction risks, for which the period of cover has not yet expired.

For each class of business a different strategy has been adopted to manage the risk. With respect to the liability account there areapproximately 600 open claims. The primary responsibility for dealing with these claims has been outsourced to specialist managersand solicitors. Their work is under constant review and supervision by one of our qualified solicitors.

The number of claims arising out of the professional indemnity account is sufficiently low to enable our claims manager to monitorprogress very closely on each case in order to enable the claims to be settled for the minimum cost.

All other claims liabilities are under constant review by our claims staff.

Given the low level of net assets in Bestpark International Ltd, there is a risk that the business may become insolvent at some point.However, the group is under no obligation to contribute additional capital and does not intend to do so.

No material disadvantage to the group is expected to result if Bestpark International Ltd were to become insolvent.


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3. Segmental informationFor management purposes, the group is currently organised into three operating divisions – Management, Services and Run-off Services.

Principal activities are as follows:

Management – Mutual management, captive management, investment management and risk management.

Services – Energy, Aviation, Non-marine and Marine (including Average) adjusting.

Run-off Services – Insurance company acquisition and run-off services. The results of insurance companies have been shownseparately in the segmental information.

Segmental information about these businesses is presented below:

Year to Year to31 December 2006 31 December 2005

£000 £000

RevenueManagement 35,420 32,981Services 35,449 34,196Run-off services 8,359 536Insurance companies – life and non-life 5,532 350Eliminations (5,647) (383)

________ ________Consolidated 79,113 67,680

________ ________


£000 £000

ResultManagement 7,959 6,285Services 5,024 4,644Run-off services 1,042 106Insurance companies – life and non-life 999 625

________ ________Consolidated 15,024 11,660

________ ________

Amounts written off goodwill (1,100) –Unallocated foreign exchange (11) (517)Share of results of associates and joint ventures 266 236

________ ________Profit from operations 14,179 11,379Investment income 1,091 580Finance costs (3,114) (1,534)

________ ________Profit before tax 12,156 10,425Tax (1,041) (398)

________ ________Profit after tax 11,115 10,027

________ ________


£000 £000

Other informationCapital additionsManagement 430 152Services 617 644Run-off services 40 1Unallocated corporate assets 186 179

________ ________Consolidated 1,273 976

________ ________

Depreciation and amortisationManagement 265 239Services 606 525Run-off services 214 23Insurance companies 33 –Unallocated corporate assets 157 89

________ ________Consolidated 1,275 876

________ ________


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3. Segmental information (continued)At At

31 December 2006 31 December 2005£000 £000

Balance sheetAssetsManagement 66,578 59,420Services 100,653 110,875Run-off services 29,453 27,390Insurance companies – life and non-life 324,976 405,792Unallocated corporate assets and eliminations (59,610) (53,004)

________ ________Consolidated total assets 462,050 550,473

________ ________

LiabilitiesManagement 42,403 39,012Services 80,058 92,186Run-off Services 25,495 31,056Insurance companies – life and non-life 312,048 391,083Unallocated corporate liabilities and eliminations (33,383) (25,822)

________ ________Consolidated total liabilities 426,621 527,515

________ ________

Segmental information on a geographical basis is shown below:Year to Year to

31 December 2006 31 December 2005

RevenueUnited Kingdom 24,951 21,971Other Europe 6,893 2,413North America 11,551 8,990Asia Pacific 7,796 8,286Bermuda 27,922 26,020

________ ________Consolidated 79,113 67,680

________ ________


Other informationCapital additionsUnited Kingdom 389 508Other Europe 66 7North America 296 152Asia Pacific 511 278Bermuda 11 31

________ ________Consolidated 1,273 976

________ ________

At At31 December 2006 31 December 2005

£000 £000

Balance sheetAssetsUnited Kingdom 360,726 439,338Other Europe 250,785 302,234North America 38,732 42,233Asia Pacific 18,061 16,655Bermuda 32,922 26,071Eliminations (239,176) (276,058)

________ ________Consolidated 462,050 550,473

________ ________


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4. Administrative expensesYear to Year to


Administrative expenses are as follows:Staff costs 44,931 40,512Depreciation and other amounts written off tangible fixed assets 1,275 876Other operating charges 13,361 15,424

________ ________Total administrative expenses 59,567 56,812

_________ _________Profit from operations is after charging/(crediting):Rentals under operating leases:

Land and buildings 2,388 2,544Hire of other assets 609 510

Depreciation and other amounts written off tangible fixed assets:Owned assets 1,143 753Assets held under finance leases 132 123

Amortisation of intangible assets (non-insurance) 327 57Amounts written off goodwill 1,100 –Auditors’ remuneration– audit fees paid to the group’s main auditors 592 515– fees paid to the group’s main auditors for other services 57 74– audit fees paid to other auditors 339 30– fees paid to other auditors for other services 206 –Losses on foreign exchange 11 459Profit on sale of fixed assets (22) (12)

The audit fee in respect of the company was £22,000 (2005 – £51,000).

Fees paid to auditors for other services are principally for tax services.

In addition, the company’s main auditors were paid fees of nil which have been capitalised as part of the cost of acquisitions

(2005 – £807,000).

5. Information regarding directors and employeesYear to Year to


Directors’ emolumentsRemuneration for management services 2,123 1,813Pension contributions 192 178

________ ________2,315 1,991

_________ _________

The emoluments and interests of the directors of the company are set out in detail on pages 14 to 18.

EmployeesThe average number of people, including directors, employed by the group in the year was:


No. No.

Executive and administration 807 754_________ _________

Staff costs incurred during the year in respect of employees were:Year to Year to


Wages and salaries 38,990 34,468Social security costs 2,618 2,459Other pension costs 3,323 3,585

________ ________44,931 40,512

_________ _________

Employee Share Ownership Plan Trust (‘ESOP’)The trustee of the ESOP is the Codan Trust Company Limited, an independent professional trust company registered in Bermuda.The ESOP is a discretionary trust for the benefit of employees of the group and provides a source of shares to distribute to thegroup’s employees (including executive directors and officers) under the group’s various bonus and incentivisation schemes, at the discretion of the trustee acting on the recommendation of a committee of the board.

The assets, liabilities, income and costs of the ESOP are incorporated into the consolidated financial statements.


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6. Investment income and other income from non-insurance activitiesYear to Year to


Profit on sale of investments 10 232Interest receivable and similar income 1,059 317Other income 22 31

________ ________1,091 580

_________ _________

7. Finance costsYear to Year to


Bank loans and overdrafts repayable within five years 2,995 1,496Other loans 88 12Finance leases 31 26

________ ________3,114 1,534

_________ _________

8. Income tax expenseYear to Year to


United Kingdom corporation tax at 30% (2005 – 30%) based on the profit for the year 1,838 876Overseas taxation 510 283Deferred taxation (1,120) (238)Prior-years’ adjustments (300) (607)Share of taxation of associates and joint ventures 113 84

________ ________1,041 398

_________ _________Factors affecting the tax charge for the current yearThe current tax charge for the year is lower than the standard rate of corporation tax in the UK. The differences are explained below.


£000 £000Current tax reconciliationProfit on ordinary activities before tax 12,156 10,425

________ ________Current tax at 30% (2005 – 30%) 3,647 3,127

Effects of:Expenses not deductible for tax purposes 381 185Movements on other short-term timing differences 952 574Lower tax rates on overseas earnings (3,554) (2,455)UK insurance company losses/(profits) not taxable or relieved by losses 1,035 (188)Prior-period adjustments (300) (607)

________ ________Total current tax charge 2,161 636

_________ _________

9. Profit of parent companyAs permitted by Section 230 of the Companies Act 1985, the income statement of the parent company is not presented as part of thesefinancial statements. The parent company’s loss for the year before dividends amounted to £1,077,000 (2005 – £12,936,000 profit).

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10. Dividends paid Year to Year to31 December 2006 31 December 2005

£000 £000

Ordinary dividends paid comprise:Final dividend for 2005 paid during 2006: 6.04p (2005 – 5.42p) per 1p ordinary share 2,356 1,948Interim dividends paid: 4.36p (2005 – 3.96p) per 1p ordinary share 1,727 1,423

________ ________4,083 3,371

_________ _________

A final dividend of 7.64p per share will be paid on 25 May 2007 subject to shareholder approval on 4 May 2007. Dividends paidhave been shown as a movement in shareholders’ funds, refer to note 23.

11. Earnings per shareEarnings per ordinary share have been calculated by dividing the profit on ordinary activities after taxation and minority interestsfor each period by the weighted average number of shares in issue. The shares held by the ESOP have been excluded from thecalculation because the trustees have waived the right to dividends on these shares.

The calculation of the basic and diluted earnings per share is based on the following data:Year to Year to


EarningsEarnings for the purposes of adjusted earnings per share 12,266 9,915Amounts written off goodwill (1,100) –Amortisation of acquired customer relationship intangible assets (139) –

________ ________Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the parent 11,027 9,915

_________ _________

Number Number

Number of sharesWeighted average number of ordinary shares for the purposes of basic earnings per share 39,196,810 36,115,159Effect of dilutive potential ordinary shares:Share options 248,255 241,046

____________ ____________Weighted average number of ordinary shares for the purposes of diluted earnings per share 39,445,065 36,356,205

____________ ____________

12. Acquisition of subsidiariesi) MGI Loss Adjusters IncOn 21 June 2006, the group acquired 100% of the issued share capital of MGI Loss Adjusters Inc for a total consideration of up to £2,027,000 satisfied by the issue of 405,603 shares in Charles Taylor Consulting plc and up to £574,000 in cash which has been provided for in full in the balance sheet. The cash consideration, which is payable in four annual instalments commencingapproximately a year after completion, is subject to profitability targets being achieved. Further, 230,862 of the new shares issued are required to be held for periods between 1 and 2 years post-completion.

The net assets acquired in the transaction, and the goodwill arising, are as follows:Acquiree’s

carrying amount Fairbefore value Fair

combination adjustments value£000 £000 £000

Net assets acquiredProperty, plant and equipment 65 – 65Trade and other receivables 513 41 554Cash and cash equivalents 30 – 30Trade and other payables (423) (28) (451)Tax liabilities (16) (4) (20)

________ ________ ________169 9 178

________ ________ ________Goodwill 1,849

________Total consideration 2,027

_________

Total£000

Consideration comprises:Share consideration 1,453Deferred contingent consideration 574

________2,027

_________


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12. Acquisition of subsidiaries (continued)The goodwill arising on the acquisition is attributable to anticipated profitability from new customer instructions.

MGI Loss Adjusters Inc contributed £785,000 revenue and £238,000 to the group’s results for the period between the date of acquisition and the balance sheet date. If the acquisition date had been 1 January 2006 the business would have contributed£1,403,000 revenue and £414,000 to the group’s result.

ii) LCL companiesOn 1 December 2005 the group acquired 100% of the issued share capital of LCL Group Limited and LCL Acquisitions Limited.Provisional details of the fair value of net assets acquired and consideration payable were given in the 2005 Annual Report and Accounts.

The fair values attributed to assets and liabilities acquired were finalised in 2006 giving rise to an increase in net assets of £769,000 and consequent reduction in goodwill of the same amount.

Consideration payable, including deferred contingent consideration, is estimated at 31 December 2006 at £36,957,000 (2005 – £36,267,000). This has been provided for in the balance sheet.

iii) Other acquisitionsSummarised disclosures have been given for the following smaller acquisitions.

Acquiree’scarryingamount Fair

before value Fair CashPercentage Acquisition combination adjustments value Consideration Goodwill

Acquired Date £000 £000 £000 £000 £000

FIT Administration (IOM) Limited 40% 13 April 2006 127 – 127 220 93Vertex Administration (IOM) Limited* 100% 26 May 2006 125 – 125 250 125Premium Life International Limited 100% 14 March 2006 247 (70) 177 – (177)

These businesses have been merged with existing businesses and it is not practical to ascertain their contribution to group revenueand result since the date of acquisition.

*£125,000 consideration is deferred and has been provided for in the balance sheet.

iv) Net cash outflow arising on acquisitionsTotal£000

LCL companies acquisition costs 2,217Cash consideration paid MGI Loss Adjusters Inc –Cash consideration paid other acquisitions 345

____________Net cash outflow 2,562

____________Cash and cash equivalents acquired 155

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13. GoodwillGoodwill

Group £000

At 1 January 2006 39,047Fair value adjustments to acquired net assets of LCL companies (769)Other adjustments to goodwill regarding acquisition of LCL companies (503)Arising on acquisition of MGI Loss Adjusters Inc 1,849Arising on other acquisitions 218Amounts written off goodwill (1,100)

________At 31 December 2006 38,742

_________

A goodwill charge of £1,100,000 arises under IFRS from the recognition of a deferred tax asset in relation to tax losses acquiredwith an insurance company subsidiary.

The group tests goodwill for impairment annually and for new acquisitions in the year of acquisition, or more frequently if thereare indications that goodwill might be impaired. There are no accumulated impairment losses.

The recoverable amounts of cash-generating units are determined from value in use calculations, where the key assumptions relate to discount rates, revenue growth and cost growth. Management estimates discount rates using pre-tax rates that reflectcurrent market assessments of the time value of money and the risks specific to the cash-generating units. The discount rates usedin the latest impairment review fall within the range 9-12%. The revenue and cost growth rates used are based on reasonablemanagement expectations for the current year budget and the following four years, with an extrapolation using a steady growthrate representing the long-term industry growth rate for subsequent years. Revenue and cost growth rates for the five-year forecastperiod and the subsequent extrapolation fall within the range of 3-5% pa.

At 31 December 2006, goodwill was allocated to cash-generating units as follows:£000

Energy North America 3,200Aviation London 442Aviation North America 1,738Non-marine UK 2,718Energy UK 11,828Investment Management UK 7,366Run-off services UK 11,450

________38,742

_________

14. Intangible assets(i) (ii) (iii) (iv)

Non-lifeinsurance

Customer Life-insurance discount onIT assets relationships VOBA reserves Total

£000 £000 £000 £000 £000

At 1 January 2006 739 685 7,979 4,164 13,567Additions 782 – – – 782Arising from acquisitions – – – – –Amortisation (188) (139) (2,632) (773) (3,732)

________ ________ ________ ________ ________At 31 December 2006 1,333 546 5,347 3,391 10,617

_________ _________ _________ _________ _________

(i) IT assets are internally-generated intangible assets such as software and new processes. These assets are amortised over theirexpected useful lives which range between three and ten years.

(ii) Customer relationship intangible assets represent the value of expected profits arising from existing customer relationships in businesses acquired and are amortised on a straight-line basis over five years.

(iii) Value of business acquired (VOBA) represents the present value of future profits embedded in acquired insurance contracts and is amortised based on the anticipated emergence of profits.

(iv) Non-life insurance discount on reserves represents the difference between the nominal value of insurance reserves and thediscounted value of those reserves. The intangible asset arising is amortised to match the anticipated cash flows arising asinsurance claims are paid.


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15. Property, plant and equipmentFreehold Leasehold Fixtures,land and land and fittings and Motorbuildings buildings Computers equipment vehicles Aircraft Total

Group £000 £000 £000 £000 £000 £000 £000

CostAt 1 January 2006 531 2,501 4,861 3,990 1,296 558 13,737Additions – 285 276 286 414 12 1,273Acquisitions – 37 34 21 – – 92Foreign exchange translation differences (18) 106 (105) (474) (26) (67) (584)Disposals – – (85) (13) (378) – (476)

_______ _______ _______ _______ _______ _______ _______At 31 December 2006 513 2,929 4,981 3,810 1,306 503 14,042

________ ________ ________ ________ ________ ________ ________

Freehold Leasehold Fixtures,land and land and fittings and Motorbuildings buildings Computers equipment vehicles Aircraft Total

£000 £000 £000 £000 £000 £000 £000

Accumulated depreciationAt 1 January 2006 193 1,390 3,838 3,109 633 148 9,311Charge for the year 31 354 389 236 231 34 1,275Acquisitions – – 11 5 – – 16Foreign exchange translation differences (1) 130 (95) (427) (50) (18) (461)Disposals – – (60) (12) (187) – (259)

________ ________ ________ ________ ________ ________ ________At 31 December 2006 223 1,874 4,083 2,911 627 164 9,882

________ ________ ________ ________ ________ ________ ________Net book valueAt 31 December 2006 290 1,055 898 899 679 339 4,160

_________ _________ _________ _________ _________ _________ _________Net book valueAt 31 December 2005 338 1,111 1,023 881 663 410 4,426

_________ _________ _________ _________ _________ _________ _________

Included in the above are the following amounts shown in the balance sheet within ‘total assets in insurance businesses’:

Net book valueAt 31 December 2006 – – – – – – –

_________ _________ _________ _________ _________ _________ _________

At 31 December 2005 – 15 – 19 – – 34_________ _________ _________ _________ _________ _________ _________

Included in the above are the following assets held under finance leases:

Motorvehicles Total

£000 £000

CostAt 1 January 2006 638 638Additions 315 315Foreign exchange translation differences (5) (5)Disposals (238) (238)

________ ________At 31 December 2006 710 710

_________ _________

Accumulated depreciationAt 1 January 2006 274 274Charge for the year 142 142Foreign exchange translation differences 2 2Disposals (123) (123)

________ ________At 31 December 2006 295 295

________ ________

Net book valueAt 31 December 2006 415 415

_________ _________

Net book valueAt 31 December 2005 364 364

_________ _________

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16. Investments held as non-current assetsShare of net assets

Associated Joint Other atundertakings ventures cost Total

£000 £000 £000 £000

GroupAt 1 January 2006 883 517 31 1,431Additions – – – –Disposals – – – –Share of profit 100 39 – 139Exchange (57) (13) – (70)

________ ________ ________ ________At 31 December 2006 926 543 31 1,500

_________ _________ _________ _________

Shares in groupundertakings Total

£000 £000

CompanyCost and net book valueAt 1 January 2006 75,322 75,322Adjustments to cost of acquisitions 690 690

________ ________At 31 December 2006 76,012 76,012

_________ _________

17. Deferred taxationProvided deferred taxation assets

GroupAt 31 December

2006 2005£000 £000

Balance at 1 January 7,652 7,896Retirement benefit obligation (1,371) (499)Intangible assets (101) (199)US tax losses 100 450Other movements 19 4

________ ________Balance at 31 December 6,299 7,652

_________ _________

Also included in these financial statements is a deferred tax asset of £2,878,000 relating to tax losses in a UK non-life insurancesubsidiary.

Unprovided deferred taxation assetsA non-life insurance company subsidiary has unrelieved schedule D case 1 trading losses of approximately £19 million. The unprovided deferred tax asset in relation to these losses amounts to approximately £6 million.

No provision is made for taxation liabilities which would arise on the distribution of profits retained by overseas subsidiariesunless the dividends have been accrued or there is a binding agreement to remit past earnings. Unremitted distributable profits of subsidiaries amounted to approximately £28 million at 31 December 2006 (2005 – £18 million).

18. Trade and other receivablesGroup Company

At 31 December At 31 December2006 2005 2006 2005£000 £000 £000 £000

Trade debtors 18,907 19,254 – –Amounts owed by subsidiaries – – 32,632 33,682Amounts owed by associates 4 24 – –Other debtors 3,806 4,466 466 603Prepayments and accrued income 22,041 22,889 64 95Corporation tax 76 131 495 416

________ ________ ________ ________44,834 46,764 33,657 34,796

_________ _________ _________ _________


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19. Trade and other payablesGroup Company


‘C’ Loan stock 79 98 79 98Other loans 4,681 450 – –Trade creditors 3,282 4,791 – –Amounts owed to subsidiaries – – 29,126 17,696Amounts owed to associates 203 146 – –Other taxation and social security 1,103 834 9 10Other creditors 1,454 1,975 22 413Accruals and deferred income 6,149 10,582 437 1,223Deferred consideration – pre existing obligation of LCL – 4,387Deferred consideration – other 270 – – –

________ ________ ________ ________17,221 23,263 29,673 19,440

_________ _________ _________ _________

Included in other loans are amounts owed to insurance businesses of £4,219,000. A corresponding asset is included in the balancesheet within ‘total assets in insurance businesses’.

20. BorrowingsGroup Company


Bank overdrafts and loanswithin one year 18,888 17,718 9,650 9,815between one and two years 7,397 7,433 7,397 7,433between two and five years 18,416 22,020 18,416 22,020in more than five years 469 3,932 – 3,932

________ ________ ________ ________45,170 51,103 35,463 43,200

_________ _________ _________ _________

Bank loans and overdrafts are secured by charges on specific assets and cross guarantees between group companies.

Analysis of finance lease commitmentsGroup Company


Minimum lease payments due:within one year 172 132 – –within two to five years 307 226 – –Less: finance charges allocated to future periods (50) (37) – –

________ ________ ________ ________429 321 – –

_________ _________ _________ _________

due within one year 149 115 – –due after more than one year 280 206 – –

________ ________ ________ ________

429 321 – –_________ _________ _________ _________

Finance leases are secured on the leased assets.Group

At 31 December2006 2005£000 £000

Net interest-bearing liabilitiesCash and cash equivalents 30,922 31,828Bank overdrafts and current loans (18,888) (17,718)Non-current bank loans (26,282) (33,385)Loan stock (79) (98)Finance leases (429) (321)

________ ________(14,756) (19,694)

Client funds (20,790) (25,100)________ ________(35,546) (44,794)________ ________

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21. ProvisionsThe insurance run-off provision was established on acquisition of the LCL companies and represents the net provision required inrelation to future costs anticipated to be incurred in running of the non-life insurance company subsidiary, Bestpark InternationalLimited.

Given the uncertainty in establishing run-off provisions it is likely that the final outcome will be different from the original liabilityestablished.

Premises Employee Insurancediapidations entitlements run-off Total

£000 £000 £000 £000

At 1 January 2006 332 259 3,638 4,229Utilised in year (207) – (1,467) (1,674)Profit and loss account charge – 42 – 42

________ ________ ________ ________At 31 December 2006 125 301 2,171 2,597

_________ _________ _________ _________

22. Called up share capitalAt 31 December

2006 2005£000 £000

Authorised50,000,000 Ordinary shares of 1p each 500 500

_________ _________Called up, allotted and fully paid39,699,667 Ordinary shares of 1p each (2005 – 38,438,298) 397 384

_________ _________

1,261,369 ordinary 1p shares were issued during the year. 141,984 shares were issued for cash and 713,782 shares were issued as additional consideration for LCL Group Ltd. 405,603 shares were issued as part consideration for MGI Limited (see Note 12). The consideration above 1p per share is reflected in the share premium account and amounts to £3,846,000.

OptionsAs at 31 December 2006 share options were outstanding as follows:

Option priceper ordinary Numbershare (pence) of shares

Savings-related Share Option SchemesNormally exercised in the period between:December 2006 and May 2007 357.75 2,035December 2007 and May 2008 213.75 105,313July 2008 and December 2008 337.50 21,037May 2007 and October 2007 257.85 73,166May 2009 and October 2009 257.85 49,452June 2009 and November 2009 337.50 161,374June 2011 and November 2011 337.50 36,252

Executive Share Option SchemesNormally exercised in the period between:October 2001 and October 2008 216.00 56,850October 2002 and October 2009 345.50 14,990March 2003 and March 2010 375.00 8,000April 2003 and April 2010 368.50 131,000October 2003 and October 2010 380.00 6,000March 2004 and March 2011 388.50 40,000April 2004 and April 2011 385.00 588,500May 2004 and May 2011 407.50 178,000April 2007 and April 2014 277.50 462,000April 2008 and April 2015 248.50 3,000September 2009 and September 2016 397.50 187,500

___________2,124,469____________


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23. Reconciliation of movement in shareholders’ fundsProfit Share

and loss Capital premium Merger Share Own Minorityaccount reserve account reserve capital shares interest Total

£000 £000 £000 £000 £000 £000 £000 £000

GroupBalance at 1 January 2006 (8,731) 662 24,979 6,872 384 (1,501) 293 22,958

Minority interest on acquisitions – – – – – – (137) (137)Minority interest on disposals (464) – – – – – 464 –Issue of share capital – – – – 13 – – 13Share premium arising on issue of share capital – – 3,845 – – – – 3,845Profit for the financial year 11,115 – – – – – 88 11,203Dividends paid (note 10) (4,083) – – – – – – (4,083)Actuarial gains on defined benefit pension schemes 4,107 – – – – – – 4,107Tax on items taken to equity (1,371) – – – – – – (1,371)Unrealised gains on available-for-saleinvestments (1,069) – – – – – – (1,069)Foreign exchange translation differences (1,308) – – – – – (19) (1,327)Movement in own shares – – – – – 1,290 – 1,290

________ ________ ________ ________ ________ ________ ________ ________Balance at 31 December 2006 (1,804) 662 28,824 6,872 397 (211) 689 35,429

_________ _________ _________ _________ _________ _________ _________ _________

The capital reserve and merger reserve arose on formation of the group and are non-distributable capital reserves.

Own shares comprise 64,224 (2005 – 458,588) shares held by the Charles Taylor Employee Share Ownership Plan Trust. The market value of these shares was £251,276 (2005 – £1,450,284) at the balance sheet date.

There are no significant restrictions on the ability of subsidiaries to transfer funds to the parent in the form of cash dividends or to repay loans or advances other than company law requirements dealing with distributable profits.

On 27 July 2006 the group sold 49.99% of the ordinary shares in its non-life insurance company subsidiary Bestpark InternationalLimited. The group retains the remaining 50.01% of ordinary shares which confer control. Accordingly, the company has beenfully consolidated in these financial statements and a minority interest of 49.99% has been shown.

Profit Shareand loss premium Shareaccount account capital Total

£000 £000 £000 £000

CompanyBalance at 1 January 2006 14,943 24,979 384 40,306

Issue of share capital – – 13 13Share premium arising on issue of share capital – 3,845 – 3,845Loss for the financial year (1,076) – – (1,076)Dividends paid (note 10) (4,083) – – (4,083)

________ ________ ________ ________Balance at 31 December 2006 9,784 28,824 397 39,005

_________ _________ _________ _________


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24. Share-based paymentsThe company operates an executive share option scheme for eligible employees, in which options are exercisable if earnings perordinary share increase by the Retail Price Index plus 6% over a three-year period and personal targets are attained. The optionsexpire after 10 years from the date of grant and if the employee leaves they lapse unless exercised within 6 months of leaving.

The company also operates a SAYE Share Option Scheme for eligible employees under which options may be granted at a discountof up to 20% of market value. Savings contracts may run over 3, 5 or 7 years. The options lapse immediately if the employeeleaves within 3 years of the option grant and lapse within 6 months of leaving if the employee leaves after 3 years of option grant.

Share options outstanding during the year were as follows:At 31 December 2006 At 31 December 2005

Weighted average Weighted averageOptions exercise price Options exercise price

Outstanding at beginning of year 1,887,165 £3.26 2,259,229 £3.12Granted during the year 414,402 £3.64 – N/AForfeited during the year 40,966 £2.63 139,290 £2.68Exercised during the year 136,484 £2.78 232,774 £2.14Outstanding at end of year 2,124,117 £3.58 1,887,165 £3.26Exercisable at end of year 1,025,375 £3.77 1,156,180 £3.66

The options outstanding at 31 December 2006 had a weighted average contractual life of 3 years. The options granted during2006 had an aggregate fair value of £256,000.

The inputs into the Black-Scholes-Merton model for options granted during the year are as follows:

Weighted average share price £3.85Weighted average exercise price £3.65Expected volatility 13.6%Expected life 2-5 yearsRisk-free rate 4.6-4.7%Expected dividend yield 2.4-2.5%

Expected volatility was determined by calculating the historical volatility of the company’s share price since flotation in 1996. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability,exercise restrictions and behavioural considerations.

The company recognised total expenses of £103,000 relating to equity-settled share-based payment transactions in 2006 (2005 – £81,000).

25. Financial instruments – excluding group insurance companiesThe group’s financial instruments, other than derivatives, comprise borrowings, some cash and liquid resources, and various itemssuch as trade debtors and trade creditors, that arise directly from its operations. The main purpose of these financial instruments is to raise finance for the group’s operations.

The group also enters into derivatives transactions (principally forward foreign currency contracts). The purpose of suchtransactions is to manage the currency risks arising from the group’s operations and its sources of finance.

It is, and has been throughout the year under review, the group’s policy that trading in financial instruments shall be undertakenwhere appropriate.

The main risks arising from the group’s financial instruments are interest rate risk, liquidity risk, credit risk and foreign currencyrisk. The board reviews and agrees policies for managing each of these risks and they are summarised below. These policies areconsistent with prior years.

Interest rate riskThe group finances its operations through a mixture of retained profits and bank borrowings. The group borrows in the desiredcurrencies at both fixed and floating rates of interest. At the year-end, 1% of the group’s borrowings were at fixed rates and theremaining 99% of group borrowings were at floating rate interest. To hedge this floating rate interest exposure the group took outan interest rate cap in May 2006 which covers a principal of £20.65m (reducing as borrowings are repaid) and caps three-monthLIBOR at 5.5% for three years.

Liquidity riskAs regards liquidity, the group’s policy has throughout the year been that, to ensure continuity of funding, its borrowings shouldbe repaid over several years. At the year-end, 79% of the group’s borrowings were due to mature in more than one year.Short-term flexibility is achieved by overdraft facilities.

Credit riskThe group is exposed to credit risk in its Services businesses and employs appropriately skilled people and systems in thecollections process to minimise the risk of non-payment.


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25. Financial instruments (continued)Foreign currency riskThe group has significant overseas subsidiaries which operate mainly in the USA, Bermuda and the Asia Pacific region and whoserevenues and expenses are denominated mainly in foreign currencies. In order to protect the group’s sterling balance sheet fromthe movements in the foreign currency/sterling exchange rate, the group finances its net investment in these subsidiaries by means of borrowings in the currencies in which these subsidiaries operate.

32% (2005 – 37%) of the group’s revenue (excluding insurance company revenue) was earned in US Dollars.

The group seeks to reduce currency exposures on fees in its UK companies through forward currency contracts and by matchingUS$ debtors with US$ overdrafts.

Financial instruments held by the group and their fair value at 31 December were as follows:Group Group

At 31 December At 31 DecemberBook Estimated Book Estimatedvalue fair value value fair value2006 2006 2005 2005£000 £000 £000 £000

Financial assetsCash at bank and in hand 30,922 30,922 31,828 31,828Forward foreign currency contracts 94 94 (149) (149)Trade debtors 18,907 18,907 19,254 19,254

________ ________ ________ ________49,923 49,923 50,933 50,933

_________ _________ _________ _________

Financial liabilitiesBank loans and overdrafts 45,170 45,170 51,103 51,103Other loans 4,760 4,760 548 548Obligations under finance leases and hire purchase contracts 429 429 321 321Trade creditors 3,282 3,282 4,791 4,791

________ ________ ________ ________53,641 53,641 56,763 56,763

_________ _________ _________ _________

The fair values of the forward foreign currency contracts have been determined by reference to prices available from the marketson which the instruments involved are traded. All the other fair values shown above have been calculated by discounting cashflows at prevailing interest rates.

The interest rate risk profile of financial assets and financial liabilities at 31 December was as follows:Group at 31 December Company at 31 December

Non-interest Non-interestFloating rate Fixed rate bearing Total Floating rate Fixed rate bearing Total

2006 2006 2006 2006 2005 2005 2005 2005£000 £000 £000 £000 £000 £000 £000 £000

Financial assetsSterling 3,030 – 16,278 19,308 3,968 – 10,822 14,790US $ 12,940 – 10,442 23,382 24,997 – 5,753 30,750Other 1,677 – 5,556 7,233 2,714 – 2,679 5,393

________ ________ ________ ________ ________ ________ ________ ________17,647 – 32,276 49,923 31,679 – 19,254 50,933

_________ _________ _________ _________ _________ _________ _________ _________Group at 31 December Company at 31 December

Non-interest Non-interestFloating rate Fixed rate bearing Total Floating rate Fixed rate bearing Total

2006 2006 2006 2006 2005 2005 2005 2005£000 £000 £000 £000 £000 £000 £000 £000

Financial liabilitiesSterling 43,705 117 3,465 47,287 50,955 321 3,368 54,644US $ 4,587 – 1,031 5,618 563 – 1,084 1,647Other 84 312 340 736 133 – 339 472

________ ________ ________ ________ ________ ________ ________ ________48,376 429 4,836 53,641 51,651 321 4,791 56,763

_________ _________ _________ _________ _________ _________ _________ _________

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25. Financial instruments (continued)Floating rate financial liabilities Sterling-denominated bank borrowings and overdrafts bear interest at rates based on the LIBOR and US dollar denominated bankborrowings bear interest at rates based on the US Prime rate.

Fixed rate financial liabilitiesThe fixed rate financial liabilities amount to £429,000 (2005 – £321,000) with a weighted average interest rate of 5% repayableover a weighted average period of two years.

Currency exposuresAs at 31 December 2006, after taking into account the effects of forward foreign exchange contracts the group had no materialcurrency exposures.

Maturity of financial liabilitiesThe maturity profile of the group’s financial liabilities at 31 December was as follows:

2006 2005£000 £000

In one year or less, or on demand 26,834 23,172In more than one year but not more than two years 7,538 7,639In more than two years but not more than five years 18,801 22,020In more than five years 468 3,932

________ _________53,641 56,763

_________ _________

Borrowing facilitiesThe group has various undrawn committed borrowing facilities. The facilities available at 31 December in respect of which all conditions precedent had been met were as follows:

2006 2005£000 £000

Expiring in one year or less 6,429 5,600_________ _________

26. Operating leasesAt the balance sheet date the group had annual commitments under operating leases as set out below:

At 31 December At 31 DecemberLand and Land andbuildings Other buildings Other

2006 2006 2005 2005£000 £000 £000 £000

Operating leases which expire:Within one year 367 180 507 89Within two to five years 1,574 269 1,638 499After five years 618 – 618 –

________ ________ ________ ________2,559 449 2,763 588

_________ _________ _________ _________


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27. Insurance company disclosuresThe directors do not believe the group is exposed to any material adverse risk from the valuation of the assets or liabilities of thegroup’s insurance companies, as the acquisition cost of the insurance companies is adjustable and limited to the distributableprofits arising from these companies (see note 2).

There is no material risk to the group arising from the investment portfolios held by the life insurance businesses as the majority of policyholder liabilities are directly linked to the value of investments held.

Although there is some uncertainty over the ability of the non-life insurance company, Bestpark International Limited, to pay allits future liabilities, and consequently a possibility that the company may become insolvent, the directors believe that there wouldbe no material disadvantage to the group in that event. The group is under no obligation to contribute further capital and does notintend to do so and the prospective reduction in net assets will not affect the group because no deferred consideration will bepayable to the vendors in the event that net assets are nil.

The directors believe that there is no material risk to the group due to variations in the timing or value of insurance claims, or the reinsurance protection thereon, concentration of risk, interest rate risk or credit risk arising out of the acquired insurancecompanies for the reasons stated above.

Further details of the amounts included in the consolidated financial statements in respect of the group’s insurance companies are disclosed below to assist readers in understanding their impact on the Consolidated Income Statement and Balance Sheet.

Consolidated income statement for group insurance companiesYear ended 31 December 2006 Period from 1 December to 31 December 2005

Non-life Life Non-life Lifebusiness business Total business business Total

£000 £000 £000 £000 £000 £000

RevenueGross premiums written (496) 1,803 1,307 (65) 174 109Outward reinsurance premiums 478 (1,524) (1,046) 38 (174) (136)

________ ________ ________ ________ ________ ________Net written premiums (18) 279 261 (27) – (27)

Change in the gross provision for unearned premiums 2,858 – 2,858 205 – 205Change in the provision for unearned premiums, reinsurers’ share (1,481) – (1,481) (106) – (106)

________ ________ ________ ________ ________ ________1,377 – 1,377 99 – 99

Fees from investment contracts acquired – 3,529 3,529 – 236 236 Fees from insurance contracts acquired – 365 365 – 42 42

________ ________ ________ ________ ________ ________– 3,894 3,894 – 278 278

________ ________ ________ ________ ________ ________Total revenue 1,359 4,173 5,532 72 278 350

Investment income 2,948 25,900 28,848 238 181 419

Other income – 104 104 – 145 145

Claims incurred, net of reinsuranceClaims paid, gross amount (28,636) (13,940) (42,576) (3,615) (1,896) (5,511)Claims paid reinsurers’ share 8,546 13,839 22,385 (320) 1,910 1,590

________ ________ ________ ________ ________ ________(20,090) (101) (20,191) (3,935) 14 (3,921)

Change in provision for claims, gross amount 25,899 (15,322) 10,577 4,063 (155) 3,908Change in provision for claims, reinsurers’ share (5,389) (7,868) (13,257) 38 – 38

________ ________ ________ ________ ________ ________20,510 (23,190) (2,680) 4,101 (155) 3,946

________ ________ ________ ________ ________ ________

Claims incurred, net of reinsurance 420 (23,291) (22,871) 166 (141) 25________ ________ ________ ________ ________ ________

Net operating expenses (5,734) (4,880) (10,614) (104) (210) (314)________ ________ ________ ________ ________ ________

Net result (1,007) 2,006 999 372 253 625_________ _________ _________ _________ _________ _________

(Losses)/gains on available-for-sale investments shown in SORIE (1,069) – (1,069) 372 – 372

_________ _________ _________ _________ _________ _________


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27. Insurance company disclosures (continued)

Consolidated balance sheet for group insurance companiesAt At


Current assetsInvestments at fair value through income– Life insurance contracts 30,953 39,061– Investment contracts assets held to back unit-linked liabilities 192,809 230,136Investments available for sale– Non-life insurance contracts 36,032 63,626

________ ________259,794 332,823

Amounts receivable under reinsurance contracts 17,646 32,997Cash and cash equivalents in insurance businesses 29,895 30,571Fixed assets – 34Debtors arising from insurance and reinsurance operations 5,480 3,434Deferred acquisition costs 5,064 5,933Amounts owed by group companies 4,219 –Deferred tax asset 2,878 –

________ ________Total assets in insurance businesses 324,976 405,792

_________ _________

Current liabilitiesInsurance technical balances– Life insurance contracts 30,953 39,061– Non-life insurance contracts 77,573 105,996Investment contracts unit-linked liabilities 192,809 230,136Creditors arising from insurance operations 4,554 10,660Deferred reinsurance commissions 2,237 2,530Provisions 1,608 1,600Other creditors 2,314 1,100

________ ________Total liabilities in insurance businesses 312,048 391,083

________ ________Net assets in insurance businesses 12,928 14,709

_________ _________

The analysis between current and non-current assets and liabilities is not useful for insurance companies. The assets and liabilities of the insurance companies have been classified as current rather than non-current for practical purposes and to conform with the presentation in these financial statements although in practice an element is expected to be settled in more than one year.

Investments held by group insurance companiesAt 31 December 2006

Life insurance Life investmentNon-life contracts contracts

investments investments investments* Total£000 £000 £000 £000

Corporate and government securities 36,032 – 28,423 64,455Unit trusts – – 137,835 137,835Unlisted investments – – 1,085 1,085Cash and cash deposits to back unit-linked liabilities – – 22,936 22,936With profits investments held with insurance companies – 30,953 – 30,953Other – – 2,530 2,530

________ ________ ________ ________36,032 30,953 192,809 259,794

_________ _________ _________ _________

Other cash and cash equivalents in insurance businesses 21,785 8,110 – 29,895_________ _________ _________ _________

* Investment contract assets are held to back unit-linked liabilities. Any increase or decrease in their value is matched by an increaseor decrease or the associated liability to policyholders.


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Group net investment in insurance companiesThe group’s net interest in insurance companies can be summarised as follows:

At At31 December 2006 31 December 2005

£000 £000

Total assets in insurance businesses 324,976 405,792Total liabilities in insurance businesses (312,048) (391,083)Deferred consideration payable to former shareholders (6,174) (7,369)Deferred consideration liability acquired with LCL companies – (4,387)Intangible assets future profits – life 5,347 7,979Intangible assets discount of liabilities – non-life 3,391 4,164Additional run-off cost provision (2,171) (3,638)Bank loans acquired with LCL companies – (4,900)Other loans acquired with LCL companies (400) (400)Amounts owed by insurance companies 978 –Amounts owed to insurance companies (4,219) –

________ ________9,680 6,158

________ ________Advance consideration (5,000) (5,000)

________ ________4,680 1,158

_________ ________

The group’s net interest in insurance companies includes an advance of £5 million in consideration which is contingent on an equivalent amount of profits emerging from the insurance companies plus interest.

28. Capital commitmentsThere were no capital commitments at 31 December 2006 (2005 – Nil).

29. Notes to the cash flow statementGroup Company

Year to Year to Year to Year to31 December 2006 31 December 2005 31 December 2006 31 December 2005

£000 £000 £000 £000

Profit/(loss) from operations 13,180 10,754 371 (291)Adjustments for:

Depreciation of property, plant and equipment 1,275 876 – –Amortisation of intangibles 1,428 57 – –Other non-cash items 103 80 – –(Decrease)/increase in provisions (608) (187) – –Share of results of associates and joint ventures (266) (236) – –

________ ________ ________ ________Operating cash flows before movements in working capital 15,112 11,344 371 (291)

Decrease/(increase) in receivables 2,429 (7,864) 3,190 (8,030)Increase/(decrease) in payables 499 6,808 10,617 (5,969)

________ ________ ________ ________Cash generated by operations 18,040 10,288 14,178 (14,290)Income taxes paid (839) (1,090) – –Interest paid (3,078) (1,377) (2,432) (1,065)Dividends from insurance companies 4,810 – – –

________ ________ ________ ________Net cash before movement in client monies 18,933 7,821 11,746 (15,355)Movement in client monies (4,310) 6,944 – –

________ ________ ________ ________Net cash from operating activities 14,623 14,765 11,746 (15,355)

________ ________ ________ ________

Additions to motor vehicles during the period amounting to £315,000 (2005 – £148,000) were financed by new finance leases.

Cash and cash equivalents (which are presented as a single class of assets on the face of the balance sheet) comprise cash at bankand other short-term highly-liquid investments with a maturity of three months or less. The cash flow statements exclude the cashflows within the group’s insurance companies.

Cash includes client monies of £20,790,000 (2005 – £25,100,000).


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30. Retirement benefit schemesCertain employees of the group are eligible for one of the four defined benefit schemes operated by the group, details of which areset out below. The assets of all these pension schemes are held in separate trustee-administered funds. The defined benefit pensionschemes are subject to triennial valuations by independent, professionally qualified actuaries, using the projected unit creditmethod. The results of the last review for each scheme are as follows:

Charles Taylor Wm. Elmslie Richards Hogg& Co. Ltd & Sons 1972 E R Lindley Pension & Life

Retirement Pension & Life & Co. Ltd AssuranceBenefits Scheme Assurance Fund Pension Plan Scheme

The last valuation was carried out as at 1 July 2004 1 Jan 2003 1 July 2005 1 May 2003Market value of scheme at last valuation was £22,175,000 £1,973,000 £3,663,100 £6,290,000Percentage coverage of actuarial value to benefits accrued to members 68% 150% 94% 62%The following actuarial assumptions were applied:

Investment returns 6.5% 7.0% 5.5% 7.0%Salary growth 4.5% 5.0% 3.0% 4.25%

Employer ongoing contribution rates for 2006 as percentage of pensionable earnings 17.8% Nil 21.2% 15.8%

The employer’s contribution rates over the average remaining service lives of the members of each scheme take account of thesurplus/deficit disclosed by the above valuations. The total expense recognised in the income statement during the year in respectof the above schemes amounted to £1,566,000 (2005 – £2,063,000).

The total expense recognised in the income statement in respect of defined contribution schemes amounted to £1,757,000 (2005 – £1,522,000 ).

The four defined benefit schemes are now all closed to new entrants, but existing members continue to accrue benefits. This meansthat the service cost in respect of existing members (expressed as an annual percentage of pensionable payroll) may be expected toincrease in successive years as a result of the schemes’ ageing membership.

International Accounting Standard 19 ‘Employee Benefits’The calculations used for IAS 19 disclosures have been based on the most recent actuarial valuations and updated by the group’sactuaries to take account of the requirements of IAS 19 in order to assess the liabilities of the Pension Plans at 31 December 2006.Plan assets for the four schemes are stated at their market value at 31 December 2006.

Similar financial assumptions have been used for each of the four schemes to calculate scheme liabilities under IAS 19, as follows:At 31 December At 31 December At 31 December

2006 2005 2004% % %

Rate of increase in salaries 3.20 4.30 4.40Rate of increase of pensions in payment 3.20 2.80 2.90Discount rate 5.30 4.90 5.30Inflation assumption 3.20 2.80 2.90

The combined assets in the schemes and the expected rate of return were:At 31 December At 31 December At 31 December

2006 2006 2005 2005 2004 2004£000 % £000 % £000 %

Equities 25,842 7.30 27,195 7.40 21,040 6.30Bonds 4,735 5.30 3,943 4.90 4,609 5.30Gilts 6,282 4.50 5,342 4.10 4,650 4.60Property 1,100 5.80 71 5.40 62 5.80Cash 2,719 5.00 2,416 4.50 1,677 4.75Other 8,978 5.30 7,127 6.00 6,465 6.00

________ ________ ________Total market value of assets 49,656 46,094 38,503

The amount recognised in the balance sheet in respect of the group’s retirement benefit obligations is as follows:2006 2005 2004£000 £000 £000

Total market value of assets as shown above 49,656 46,094 38,503Actuarial value of liability (67,692) (69,320) (63,430)Effect of paragraph 58(b) limit (1,353) (740) (702)Other amounts payable to former employees (55) (61) (64)Overseas retirement benefit obligation (165) (132) (143)

________ ________ ________Net liability recognised in the balance sheet (19,609) (24,159) (25,836)Related deferred tax asset 5,883 7,244 7,737

________ ________ ________Pension liability net of related deferred tax asset (13,726) (16,915) (18,099)

_________ ________ ________

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30. Retirement benefit schemes (continued)The plan assets do not include any of the group’s own financial instruments, nor any property occupied by, or other assets usedby, the group. The expected rates of return on individual categories of plan assets are determined by reference to relevant indicespublished by iBoxx. The overall expected rate of return is calculated by weighting the individual rates in accordance with theanticipated balance in the plan’s investment portfolio.

Amounts recognised in profit or loss in respect of the defined benefit plans are as follows:Year to Year to


Current service cost 1,073 1,227Expected return on pension scheme assets (2,900) (2,541)Interest on pension obligation 3,399 3,377Other (6) –

________ ________1,566 2,063

_________ _________

The charge for the year is included in administrative expenses in the income statement. The actual return on plan assets was 7% (2005 – 17%).

Analysis of amount recognised in Statement of Recognised Income and Expense (SORIE)Year to Year to


Actual return less expected return on assets (13) 4,080Experience gains and losses on liabilities (1,139) 2,263Changes in assumptions 5,878 (4,867)

________ ________Actuarial gain recognised 4,726 1,476Adjustment due to surplus cap (619) (39)

________ ________Net gain recognised – before tax 4,107 1,437

________ ________Movement in deferred tax (1,371) (431)

________ ________Net gain recognised in SORIE 2,736 1,006

_________ _________

Changes in the present value of the defined benefit obligation are as follows:Year to Year to


Opening defined benefit obligation 69,320 63,430Service cost 1,073 1,227Interest cost 3,399 3,377Experience and assumption (gains)/losses (4,739) 2,467Member contributions 258 262Benefits paid (1,619) (1,443)

________ ________Closing defined benefit obligation 67,692 69,320

_________ _________

Changes in the fair value of plan assets are as follows:Year to Year to


Opening fair value of plan assets 46,094 38,503Expected return 2,900 2,541Experience (losses)/gains (13) 4,080Contributions by employer 2,036 2,151Member contributions 258 262Benefits paid (1,619) (1,443)

________ ________Closing fair value of plan assets 49,656 46,094

_________ _________


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30. Retirement benefit schemes (continued)History of experience gains and losses

Year to Year to Year to31 December 2006 31 December 2005 31 December 2004

£000 £000 £000

Difference between expected and actual return on scheme assets: amount (13) 4,080 772percentage of scheme assets (0.0%) 8.9% 2.0%

Experience gains and losses on scheme liabilities: amount (1,139) 2,263 (451)percentage of scheme liabilities 1.7% (3.3%) 0.7%

Total amount recognised in statement of recognised income and expense: amount 4,651 1,437 (6,618)percentage of scheme liabilities (6.9%) (2.1%) 10.3%

Sensitivity analysis The key assumptions used in the IAS 19 valuation are detailed above. The sensitivities regarding these assumptions are shownbelow.

Assumption Change in assumption Indicative effect on the scheme’s liabilitiesDiscount rate Increase/decrease by 0.25% Decrease/increase by 6%Longevity Increase by 1 year Increase by 3%

The group expects to contribute approximately £2,700,000 to its defined benefit plans in 2007.

31. Related party transactionsTransactions during the year with associated undertakings entered into in the ordinary course of business were as follows:


£000 £000

Fees issued to related parties – 10Management charges to related parties – –Fees issued by related parties – 5

Amounts owed by and to associate undertakings are given in notes 18 and 19.

The company received dividends from its subsidiaries during 2006 of £Nil (2005 – £17,979,000). Interest receivable by the companyfrom its subsidiaries amounted to £22,000 (2005 – £118,000). Interest payable by the company to its subsidiaries amounted to£64,000 (2005 – Nil). Amounts owed by and to subsidiaries are given in notes 18 and 19.

The remuneration of directors and other key management during the year are disclosed on pages 14 to 18.

A director of the company, A Brannon, had a beneficial interest in a lease entered into with a subsidiary. In the period to 31 December 2006 rentals of £38,954 (2005 – £2,439) were paid and an amount of £38,954 (2005 – £428) was owing at 31 December.

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32. Principal subsidiariesThe subsidiaries listed below are included in the Consolidated Financial Statements.

The main trading activities, except where noted below, are the provision of specialist insurance management services to mutualassociations and captive insurance companies, claims consulting and average adjusting, third-party claims administration, riskassessment services, insurance and insurance run-off services. The principal place of business is the same as the place ofincorporation/establishment unless otherwise indicated.

Place of Percentage Subsidiary Principal place incorporation/ of equity

of business establishment share capital

Bateman Chapman (Australia) Pty Ltd Australia 100

Charles Taylor Consulting (Australia) Pty Ltd Australia 100

Charles Taylor Consulting (Development) Pty Ltd Australia 100

Charles Taylor Consulting (Management) Pty Ltd Australia 100

Charles Taylor & Co. (Bermuda) Bermuda 100

Charles Taylor (Bermuda) Ltd Holding Company UK Bermuda 100

Charles Taylor Consulting (Hamilton) Bermuda 100

Charles Taylor (Hamilton) Ltd Holding Company UK Bermuda 100

Charles Taylor Captive Management Company Limited Bermuda 100

Bateman Chapman (Toronto) Inc*(Formerly MGI Loss Adjusters Inc) Canada 100

Charles Taylor Consulting (Canada) Inc Canada 100

China Technical Consulting (Shanghai) Co Limited China 70

CTC Adjusters Surveyors Co Limited China 70

Charles Taylor Consulting Services France srl France 100

Bateman Chapman (Holdings) Limited Great Britain 100

Bateman Chapman Limited Great Britain 100

Bestpark International Limited Great Britain 50

Charles Taylor & Co. Limited Great Britain 100

Charles Taylor Administration Services Limited Great Britain 100

Charles Taylor Consulting Services Limited Great Britain 100

Charles Taylor Holdings Limited Holding Company Great Britain 100

Charles Taylor Investment Management Company Limited Great Britain 100

Charles Taylor Overseas Limited Holding Company Great Britain 100

Farway Limited Great Britain 100

LCL Acquisitions Limited Holding Company Great Britain 100

LCL Group Limited Holding Company Great Britain 100

LCL Collections Limited Great Britain 100

LCL Insurance Services Limited Great Britain 100

LCL Services Limited Great Britain 100

Metrowise Limited Holding Company Great Britain 100

Richards Hogg Overseas Limited Holding Company Great Britain 100

The Richards Hogg Lindley Group Limited Holding Company Great Britain 100

Charles Taylor (Guernsey) Limited Greece Guernsey 100

*Acquired during the year. Further details disclosed in note 12.


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32. Principal subsidiaries (continued)Place of Percentage

Subsidiary undertakings and main activity Principal place incorporation/ of equity of business establishment share capital

Richards Hogg Holdings Limited Holding Company Hong Kong 100

Richards Hogg Lindley (Hellas) Ltd Greece Hong Kong 100

Richards Hogg Lindley (India) Ltd India Hong Kong 100

PT Radita Hutama Internusa Indonesia 77.5

LCL International Life Assurance Company Limited Isle of Man 100

LCL Services (IOM) Limited (formerly Vertex Administration Limited)* Isle of Man 100

Charles Taylor Consulting (Japan) Limited Japan 100

CTC Services (Malaysia) SDN Bhd Malaysia 100

CTC Mexico SA de CV Mexico 100

Charles Taylor Consulting (Netherlands) BV Netherlands 100

Charles Taylor Holdings BV Holding Company Netherlands 100

Richards Hogg Lindley (Phils) Inc Philippines 100

Charles Taylor Mutual Management (Asia) Pte. Limited Singapore 100

Charles Taylor Consulting SL Spain 100

Overseas Adjusters and Surveyors Co Taiwan 85

CTC Americas Inc Holding Company USA 100

CTG Mutual Management Inc USA 100

LAD (Aviation) Inc USA 100

Rush Johnson Associates LLP USA 100

Signal Administration Inc USA 100

Except for the holdings in LCL Group Limited, LCL Acquisitions Limited, Charles Taylor Holdings Limited, Bateman Chapman(Holdings) Limited and The Richards Hogg Lindley Group Limited, all holdings are indirect.

Place of Percentage Associate undertakings and Joint Ventures Principal place incorporation/ of equity

of business establishment share capital

Crescendo Holdings Limited Holding Company Italy Great Britain 50

Tower Marine Consultants Limited Great Britain 50

Dari Co Limited Hong Kong 50

CTC-IGS Iran (Kish) Ltd Iran 50

Fender Marine AS Norway 50

Korhi Average Adjusters Limited South Korea 50

*Acquired during the year. Further details disclosed in note 12.

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Five-year Record

(i) (ii) (iii) (iv) (v)2002 2003 2004 2005 2006

(Restated) (Restated) (Restated)£000 £000 £000 £000 £000

Consolidated profit and loss account for yearRevenue 55,649 55,921 62,809 67,680 79,113

_______ _______ _______ _______ _______Profit from operations before amortisation of goodwill 8,187 8,972 10,431 11,379 15,279Amortisation of goodwill (5,621) – – – (1,100)

_______ _______ _______ _______ _______Profit from operations 2,566 8,972 10,431 11,379 14,179Net other charges (538) (145) (911) (954) (2,023)

_______ _______ _______ _______ _______Profit before tax 2,028 8,827 9,520 10,425 12,156Income tax expense (1,107) (1,146) (1,460) (398) (1,041)Minority interests – (2) (31) (112) (88)

_______ _______ _______ _______ _______Profit for the year 921 7,679 8,029 9,915 11,027

_______ _______ _______ _______ _______Earnings and dividendsEarnings per ordinary share – basic 2.7p 22.4p 22.4p 27.5p 28.1p

– adjusted 19.3p 22.4p 22.4p 27.5p 31.3pDividends per ordinary share 7.45p 8.20p 9.02p 10.00p 12.0pCover for ordinary dividends (adjusted) 2.6x 2.7x 2.5x 2.8x 2.6x

_______ _______ _______ _______ _______

(i) (ii) (iii) (iv) (v)2002 2003 2004 2005 2006

(Restated) (Restated) (Restated)£000 £000 £000 £000 £000

Consolidated balance sheet at year endAssets employedNon-current assets 13,311 10,862 30,321 66,089 61,154Net current assets 7,300 10,809 13,249 26,217 29,483Non-current liabilities and provisions (6,372) (4,532) (35,052) (69,348) (54,828)

_______ _______ _______ _______ _______Net assets 14,239 17,139 8,518 22,958 35,809

________ ________ ________ ________ ________Financed byShare capital and share premium 15,465 15,693 19,869 25,363 29,221Capital and merger reserves 7,534 7,534 7,534 7,534 7,534Profit and loss account (8,762) (4,528) (17,419) (8,731) (1,424)Own shares – (1,563) (1,516) (1,501) (211)Minority interests 2 3 50 293 689

_______ _______ _______ _______ _______Equity shareholders’ funds and minorities 14,239 17,139 8,518 22,958 35,809

________ ________ ________ ________ ________

The above additional information relating to the five-year record has been prepared from the audited records of the group. While it does not form part of the statutory financial statements, it should be read in conjunction with them and the responsibilitiessection of the auditors’ report thereon.

Notes(i) Prepared in accordance with applicable UK GAAP but restated for the introduction of FRS 5 Application note G. The effect

of the change was to reduce profit before tax by £936,000 and to increase net assets by £312,000.(ii) As for (i) but restated for UITF 38. Policy of amortising goodwill ceased. Amortisation in 2003 would have been £3,363,000

but for the change in policy.(iii) As for (ii) but restated for the introduction of IFRS.(iv) Prepared in accordance with IFRS.(v) Prepared in accordance with IFRS.

This Annual Report and Financial Statements contains certain forward-looking statements. By their nature, forward-lookingstatements involve risks and uncertainties because they relate to events and depend on circumstances that will or may occur inthe future. Actual results may differ from those expressed in such statements, depending on a variety of factors, including demandand pricing; operational problems; general economic conditions; political stability and economic growth in relevant areas of theworld; changes in laws and governmental regulations; exchange rate fluctuations and other changes in business conditions; the actions of competitors and other factors.

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Shareholder Information

Analysis of shareholdingsThe tables below show an analysis of ordinary shareholdings as at 31 December 2006.

Holder Percentage Members Percentage

Individuals 6,719,789 16.9 501 65.0Nominee companies 31,910,493 80.4 246 31.9Other corporations 1,069,385 2.7 24 3.1

____________ ____________ ____________ ____________39,699,667 100.0 771 100.0______________ ______________ ______________ ______________

Number of shares held:1 to 5,000 660,864 1.7 514 66.7

5,001 to 10,000 471,499 1.2 64 8.310,001 to 50,000 2,452,263 6.2 101 13.1

50,001 to 250,000 6,648,119 16.7 55 7.1250,001 to 1,000,000 14,691,276 37.0 27 3.5

1,000,001 to 3,200,000 14,775,646 37.2 10 1.3____________ ____________ ____________ ____________39,699,667 100.0 771 100.0______________ ______________ ______________ ______________

Annual General MeetingThe AGM of the company will be held on 4 May 2007. The notice of the meeting is set out on page 62.

Shareholder enquiriesThe company’s registrar is Computershare Investor Services PLC. Enquiries relating to the following administrative matters shouldbe addressed to the company’s registrar: Computershare Investor Services PLC, The Pavilions, Bridgewater Road, Bristol BS99 7NH.Tel: 0870 889 4020.– Dividend reinvestment plan.– Dividend payment enquiries.– Dividend mandate instructions. Dividends may be paid directly into your bank or building society account on completion

of a mandate instruction form. Tax vouchers are sent to the shareholder’s registered address.– Loss of share certificates/dividend warrants/tax vouchers.– Notification of change of address.– Transfer of shares to another person.– Amalgamation of accounts. If you receive more than one copy of the annual report, you may wish to amalgamate your accounts

on the share register.

Investor CentreAs a part of our commitment to improve shareholder communications we can now offer you a free, secure share managementwebsite. Managing your shares online means you can access information quickly, securely and minimise postal communications.This service will allow you to:– View your share portfolio and see the latest market price of your shares.– Elect to receive your shareholder communications online.– Calculate the total market price of each shareholding.– View price histories and trading graphs.– Update back mandates and change address details.

To take advantage of this service, please log in at www.uk.computershare.com/investor and enter your shareholder ReferenceNumber and Company Code (this information can be found on the last dividend voucher or your share certificate).

For other enquiries relating to shareholder services or general enquiries about the company, please contact: The CompanySecretarial Department, Charles Taylor Consulting plc, Essex House, 12-13 Essex Street, London WC2R 3AA. Tel. 020 7759 4934.

Share price informationCharles Taylor Consulting’s share price appears in the Financial Times under ‘General Financial’ and also in the Independent.

Dividends and tax on dividendsDividend information can be found in the Report of the Directors on page 9.Non-taxpayers may be able to claim back from the Inland Revenue some or all of the tax paid by the company on their cashdividend payments. The dividend tax voucher will be required when making a claim.

Unsolicited mailAs the company’s share register is, by law, open to public inspection, shareholders may receive unsolicited mail from organisationsthat use it as a mailing list. To limit the amount of unsolicited mail you receive, write to the Mailing Preference Service, FREEPOST29, London W1E 0ZT.

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NOTICE IS HEREBY GIVEN that the Annual General Meeting of Charles Taylor Consulting plc will be held at International House,1 St Katharine’s Way, London, E1W 1UT, at 12 noon on 4 May 2007 for the transaction of the following business:

Ordinary BusinessTo consider and, if thought fit, pass the following ordinary resolutions:

1. That the financial statements for the year to 31 December 2006, and the reports of the directors and the auditors thereon, be received and adopted.

2. That the Report of the Remuneration Committee on pages 14 to 18 of the Report and Financial Statements for 2006 be approved.

3. That a final dividend of 7.64p per share be paid to the holders of ordinary shares on the register of members of the company at the close of business on 20 April 2007.

4. That J S M Rowe be re-elected as a director.

5. That R J W Titley be re-elected as a director.

6. That M A Knight be re-elected as a director.

7. That Deloitte & Touche LLP be re-appointed as auditors of the company and that their remuneration be determined by thedirectors.

Special BusinessTo consider and, if thought fit, pass the following resolutions:

8. As an ordinary resolutionTHAT the company be authorised to make donations to EU (European Union) political organisations, not exceeding £10,000in total, during the period beginning with the date of the 2007 Annual General Meeting and ending at the conclusion of theday on which the 2008 Annual General Meeting is held.

9. As a special resolutionAuthority to repurchase sharesTHAT the directors be and are hereby generally and unconditionally authorised for the purpose of Section 166 of theCompanies Act 1985 to make market purchases (within the meaning of Section 163 (3) of the Companies Act 1985) of Ordinary Shares of 1p each in the capital of the company provided that:

a) the maximum number of Ordinary Shares hereby authorised to be purchased is 3,970,059;

b) the minimum price which may be paid for such shares is 1p;

c) the maximum price (exclusive of expenses) which may be paid for any such share will be not more than 5% above theaverage of the middle market quotation for such shares as derived from the Daily Official List of the London StockExchange LSE for the ten business days in respect of which the Daily Official List is published immediately preceding the day on which the share is to be purchased;

d) the authority hereby conferred shall expire at the earlier of 15 months from the date of this resolution and the end of the2008 Annual General Meeting of the company;

e) the company may make a contract to purchase its own shares under the authority hereby conferred prior to the expiry ofsuch authority which will or may be executed wholly or partly after the expiry date of such authority and make purchasesof its own shares in pursuance of any such contract as if the authority conferred hereby had not expired.

10. As an ordinary resolutionAuthority to allot sharesTHAT:

a) the directors be and they are hereby generally and unconditionally authorised for the purpose of section 80 of the CompaniesAct 1985 to allot and grant rights to subscribe for or to convert securities into unissued shares of the company up to anaggregate nominal amount of £102,994, provided that this authority shall expire at the conclusion of the Annual GeneralMeeting of the company to be held in 2008 or, if earlier, the date falling 15 months after the date of passing this resolution.

b) the company be allowed to make any offer or agreement which will or might require any such shares to be allotted or anysuch rights to be granted after the expiry of this authority and the directors may, notwithstanding such expiry, allot sharesand grant such rights in pursuance of any such offer or agreement made by the company before the expiry of thisauthority; and

c) this authority be in substitution for all subsisting authorities given by the company for the purpose of section 80 of theCompanies Act 1985 to the extent that such authorities are unused.

Notice of Annual General Meeting

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11. As a special resolutionDisapplication of pre-emption rights on allotmentTHAT the directors be empowered to allot any equity securities of the company under the authority conferred on them by this meeting for the purpose of section 80 of the Companies Act 1985 as if section 89(1) of that Act did not apply to any suchallotment provided that this power be limited to:

a) the allotment of equity securities which are offered for cash to those persons who are registered on such date as thedirectors may prescribe as the holders of the issued ordinary shares of the company (as nearly as may be in proportion to the number of ordinary shares respectively held by them) other than those holders resident outside the UK to whom an offer would be, in the opinion of the directors, impracticable or unlawful in any jurisdiction in the world.

b) the allotment of equity securities which are not offered to any holders of ordinary shares of the company resident outsidethe UK pursuant to any such offer as aforesaid or which may represent fractional interests arising in connection with anysuch offer; and

c) any other allotments of equity securities for cash up to an aggregate nominal amount of £19,850.

and shall expire at the conclusion of the Annual General Meeting of the company to be held in 2008 or, if earlier, the datefalling 15 months after the date of passing this resolution, save that the company may before such expiry make an offer or agreement which would or might require securities to be allotted after such expiry and the directors may allot equitysecurities in pursuance of such offer or agreement as if the power conferred hereby had not expired; the expression ‘equitysecurities’ having, for the purpose of this resolution, the meaning given to it by section 94 of the Companies Act 1985.

Ordinary ResolutionsTo consider and, if thought fit, pass the following resolutions as ordinary resolutions:12. a) That the Charles Taylor Consulting Executive Share Option Scheme 2007 (the ‘ESOS’), the principal terms of which are

summarised in the Appendix to the Notice of Annual General Meeting dated 22 March 2007 sent to shareholders, andcopies of the rules of which have been produced to the meeting at which this resolution is proposed and for the purposesof identification have been signed by the Chairman hereof, be approved; and the directors of the company be authorisedto do all acts and things necessary to give effect to the operation of the ESOS; and

b) the directors be hereby authorised to establish further schemes based on the ESOS for directors and employees of thecompany and its subsidiaries who work outside the UK, these schemes being modified in such manner as the directorsconsider necessary or desirable to take account of local tax, exchange control or securities laws in overseas territories,provided that any shares made available under such schemes are treated as counting against any limits on individual or overall participation in the ESOS.

13. a) That the Charles Taylor Consulting Long Term Incentive Plan 2007 (the ‘LTIP’), the principal terms of which aresummarised in the Appendix to the Notice of Annual General Meeting dated 22 March 2007 sent to shareholders, andcopies of the rules of which have been produced to the meeting at which this resolution is proposed and for the purposesof identification have been signed by the Chairman hereof, be approved; and the directors of the company be authorisedto do all acts and things necessary to give effect to the operation of the LTIP; and

b) the directors be hereby authorised to establish further schemes based on the LTIP for directors and employees of thecompany and its subsidiaries who work outside the UK, these schemes being modified in such manner as the directorsconsider necessary or desirable to take account of local tax, exchange control or securities laws in overseas territories,provided that any shares made available under such schemes are treated as counting against any limits on individual or overall participation in the LTIP.

14. a) That the Charles Taylor Consulting Loyalty Plan 2007 (the ‘Loyalty Plan’), the principal terms of which are summarised inthe Appendix to the Notice of Annual General Meeting dated 22 March 2007 sent to shareholders, and copies of the rulesof which have been produced to the meeting at which this resolution is proposed and for the purposes of identificationhave been signed by the Chairman hereof, be approved; and the directors of the company be authorised to do all acts andthings necessary to give effect to the operation of the Loyalty Plan; and

b) the directors be hereby authorised to establish further schemes based on the Loyalty Plan for directors and employees ofthe company and its subsidiaries who work outside the UK, these schemes being modified in such manner as the directorsconsider necessary or desirable to take account of local tax, exchange control or securities laws in overseas territories,provided that any shares made available under such schemes are treated as counting against any limits on individual or overall participation in the Loyalty Plan.

15. a) That the Charles Taylor Consulting Sharesave Scheme 2007 (the ‘Sharesave Scheme’), the principal terms of which aresummarised in the Appendix to the Notice of Annual General Meeting dated 22 March 2007 sent to shareholders, andcopies of the rules of which have been produced to the meeting at which this resolution is proposed and for the purposesof identification have been signed by the Chairman hereof, be approved; and the directors of the company be authorisedto do all acts and things necessary to give effect to the operation of the Sharesave Scheme; and

b) the directors be hereby authorised to establish further schemes based on the Sharesave Scheme for directors and employeesof the company and its subsidiaries who work outside the UK, these schemes being modified in such manner as thedirectors consider necessary or desirable to take account of local tax, exchange control or securities laws in overseasterritories, provided that any shares made available under such schemes are treated as counting against any limits onindividual or overall participation in the Sharesave Scheme.

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Notice of Annual General Meeting (continued)

Documents for InspectionThe draft rules of each of the proposed ESOS, LTIP, Loyalty Plan and Sharesave Scheme are available for inspection at CharlesTaylor Consulting plc’s registered office (at Essex House, 12-13 Essex Street, London, WC2R 3AA) during usual business hours on any weekday (Saturdays and public holidays excluded) from the date of this Notice of AGM to the date of the AGM and at 12 noon on the day of the AGM for 15 minutes prior to and during the meeting.

By order of the board Registered OfficeI J Keane Essex House, 12-13 Essex StreetSecretary London WC2R 3AA22 March 2007 Registered Number 3194476

Authorised and regulated by the Financial Services Authority

Notes1. A member of the company entitled to attend and vote at the Annual General Meeting may appoint one or more proxies to

attend and, on a poll, to vote instead of him/her. A proxy need not be a member of the company. To be effective the form ofproxy must be deposited with the company’s registrar, Computershare Investor Services PLC, PO Box 1075, Bristol BS99 3ZZ,not less than 48 hours before the time of the meeting.

2. The completion of a proxy does not preclude a member from attending the Annual General Meeting and voting in person.3. Copies of the directors’ service agreements or letters of appointment are available for inspection at the registered office of the

company during usual business hours on each business day. All such documents will also be available at the place of theAnnual General Meeting for at least 15 minutes prior to, and during, the Annual General Meeting.

4. The register of directors’ interests will be available for inspection at the commencement of, and during, the Annual GeneralMeeting.

5. As permitted by regulation 41 of the Uncertified Securities Regulations 2001, only those shareholders who are registered on thecompany’s register of members at 12 noon on 2 May 2007 or, in the event that the Annual General Meeting is adjourned, onthe register of members 48 hours before the time of any adjourned meeting, shall be entitled to attend the Annual GeneralMeeting and to vote in respect of the number of ordinary shares registered in their names at that time. Changes to entries onthe register of members after 12 noon on 2 May 2007 or, in the event that the Annual General Meeting is adjourned, on theregister of members 48 hours before the time of any adjourned meeting, shall be disregarded in determining the rights of anyperson to attend and/or vote at the Annual General Meeting.

6. By attendance at the Annual General Meeting (or any adjournment thereof) those attending confirm that they are requesting,and are willing to receive, all communications made at that meeting relating to the company’s shares.

7. At this year’s Annual General Meeting, there are 18 resolutions which members are asked to approve. An explanation of theseresolutions is given below:

Resolution 1The Directors will present the Financial Review, the Auditors’ Report and the Financial Statements of the company for the yearended 31 December 2006.

Resolution 2The Directors’ Remuneration Report is set out on pages 14 to 18. It complies with the requirement introduced by the Directors’Remuneration Regulations of 2002 for a Report on the Remuneration of all Directors, and the Company Remuneration Policy. The vote is advisory only and will not require the company to alter any arrangements detailed in the Report, should theResolution not be passed.

Resolution 3The Directors will propose a final dividend of 7.64p.

Resolutions 4 to 6The three directors, J S M Rowe, R J W Titley and M A Knight, who in accordance with the Articles of Association retire at theforthcoming Annual General Meeting; each being eligible, offer themselves for re-election and following satisfactory performancereviews, the Nomination Committee supports their re-election as directors.

John Stephen Martin RoweBorn 1951, Barrister, Chairman and Group Chief ExecutiveJohn Rowe joined Charles Taylor in 1973. Prior to his appointment as Chief Executive in May 1993, and Chairman in September1993, he was Chief Executive of Charles Taylor’s London Management division responsible for the management of the group’s UK-based client mutuals and between 1986 and 1990 had been responsible for new business development outside the US. He wasappointed to the board on 16 September 1996.

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Richard John Wolseley TitleyBorn 1939, Senior Non-Executive Director and Chairman of the Remuneration Committee Richard Titley, was with the Sedgwick Group for 36 years, and retired as Chairman. When the Sedgwick Group was taken over byMarsh & McLennan he continued until his retirement as Chairman of the Middle East and Africa and Chairman of the EuropeanDevelopment Group. He was appointed to the board on 17 January 2000.

Michael Anthony Knight FCABorn 1953, Non-Executive Director and Chairman of the Audit CommitteeMichael Knight, until June 2001, was an advisory partner in Ernst & Young, servicing primarily major plcs and multinationals. He is also a non-executive director of Sutton Harbour Holdings plc. He was appointed to the board on 16 March 2000.

Resolution 7Deloitte & Touche LLP have expressed their willingness to continue to act as Auditors of the company and Resolution 10 proposesthe re-appointment of that firm as the company’s Auditors and to authorise the Directors to determine the Auditors’ Remuneration.

Resolution 8The Companies Act 1985 requires companies to obtain shareholder authority before they can make donations to EU politicalorganisations (which include UK political parties). The definition of political donations used in the Act is very broad. Thecompany’s policy is that it does not, directly or through any other subsidiary, make what are commonly regarded as donations to any political party. The authority we are requesting from shareholders is not designed to change that policy. It will, however,ensure that the company acts within the provisions and definitions of the current UK law when carrying out the above activities.

Resolution 9Resolution 9 seeks authority for the company to make market purchases of its own ordinary shares, which would otherwise beprohibited by the Companies Act 1985. The Directors believe that there may be times when it would be desirable to manage thecompany’s capital by buying back shares. However, the Directors only intend to use the authority if they believe such purchaseswould be in the best interests of shareholders generally and would result in an increase in earnings per share. The resolutionspecifies the maximum number of shares that can be acquired (approximately 10% of the issued ordinary share capital of thecompany as at 22 March 2007) and the minimum and maximum prices at which they may be bought. Any shares purchasedunder the authority granted by the resolution will either be cancelled or may be held as treasury shares (see the followingparagraph).

The Companies (Acquisition of Own Shares) (Treasury Shares) Regulations 2003 came into force on 1 December 2003 and madecertain amendments to the Companies Act 1985 in relation to Treasury shares.

The amendments allow companies to retain any of their own shares they have purchased as treasury shares with a view topossible re-issue at a future date, rather than cancelling them as had previously been required by legislation. If the company wereto purchase any of its own shares pursuant to the authority of Resolution 10 it would consider holding them as treasury shares,provided that the number did not at any time exceed 10% of the company’s issued share capital. This would give the company the ability to re-issue treasury shares quickly and cost effectively, and would provide the company with additional flexibility in the management of its capital base.

Resolution 10 and 11As in previous years, Members passed Resolutions giving the Directors Authorisation, subject to a cap, to allot shares for cash orotherwise and further for limited disapplication of section 89 of The Companies Act, empowering them to allot shares for cash or otherwise in accordance with statutory pre-exemption rights in certain limited circumstances.

Resolutions 12 to 15The company is seeking approval for the establishment of the following employee share schemes (the ‘Employee Share Schemes’):

The Charles Taylor Consulting Executive Share Option Scheme 2007;The Charles Taylor Consulting Long Term Incentive Plan 2007;The Charles Taylor Consulting Loyalty Plan 2007; andThe Charles Taylor Consulting Sharesave Scheme 2007.

The Employee Share Schemes are to be established as replacements for the company’s existing share schemes which have beenoperated since 1996 and which expired last year. Following expiry of the Employee Share Schemes no further awards can be madeunder the company’s existing share schemes.

A summary of the main features of each of the Employee Share Schemes is set out in the Appendix.

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AppendixSummary of the provisions applying to each of the Employee Share Schemes

Set out below is a summary of the provisions which are common to each of:• The Charles Taylor Consulting Executive Share Option Scheme 2007 (‘the ESOS’);• The Charles Taylor Consulting Long Term Incentive Plan 2007 (‘the LTIP’);• The Charles Taylor Consulting Loyalty Plan 2007 (‘the Loyalty Plan’); and• The Charles Taylor Consulting Sharesave Scheme 2007 (‘the Sharesave Scheme’),(together ‘the Employee Share Schemes’).

The following definitions shall apply in this Appendix.Board means the board of directors of the company or a duly authorised committee;Group means the company and any of its subsidiaries; HMRC means HM Revenue & Customs;ITEPA means the Income Tax (Earnings & Pensions) Act 2003;Trustee means the trustee of the existing Charles Taylor Employees’ Share Ownership Plan Trust established by deed on

20 September 1996.

Operation of the Employee Share SchemesThe Employee Share Schemes will be administered by the board, or a duly formed committee of the board, or the RemunerationCommittee, or the trustees (following consultation with the board).

Options and allocations may normally be granted only in the six weeks beginning with the date on which the Employee ShareSchemes are approved by shareholders (or, if later, by HMRC in the case of UK approved options) and thereafter in the six weeksfollowing the date on which the company announces its results for any period. Options and allocations may also be granted bythe board in circumstances considered to be exceptional.

None of the Employee Share Schemes will be operated more than ten years after approval by shareholders, and the RemunerationCommittee or the board, as appropriate, will continue to review the operation of the Employee Share Schemes during this period.

Options and allocations are not transferable (other than to the participant’s personal representatives in the event of his or herdeath) and do not form part of pensionable earnings.

EligibilityAny employee (including executive directors) of the Group will be eligible to participate in the Employee Share Schemes. In thecase of the Sharesave Scheme, which is an all-employee scheme, the board may set a service requirement of not more than 5 years.

Rights Attaching to SharesOptions and allocations will not confer any shareholder rights on participants (for example, the right to vote the shares), until the options have been exercised or the allocations have vested, and the participant has received his or her shares.

Shares allotted under the Employee Share Schemes will rank equally with all other shares of the same class then in issue, but willnot qualify for dividends or other rights arising by reference to a prior record date.

Participants in the LTIP will be entitled to receive a cash payment following the vesting of their allocations representing thedividends that they would have received had they been the actual holder of the shares subject to an allocation which vests duringthe vesting period.

Limits on the Issue of SharesEach of the Employee Share Schemes may operate over new issue shares, treasury shares or shares purchased in the market.In any ten year period the company may not issue (or have the possibility to issue) more than:a) 10 per cent of the issued ordinary share capital of the company under the Employee Share Schemes and any other employees’

share scheme adopted by the company; andb) 5 per cent of the issued ordinary share capital of the company under the Employee Share Schemes (other than the Sharesave

Scheme) and any other discretionary employees’ share scheme adopted by the company.

Treasury shares will count as new issue shares for the purposes of these limits for so long as institutional investor bodies considerthat they need to be so counted.

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Performance TargetsThe exercise of options granted under the ESOS and matching options granted under the Loyalty Plan, and the satisfaction ofallocations granted under the LTIP, will be conditional on the fulfilment of performance targets set at the date of grant of suchoptions or allocations, having regard to the prevailing circumstances of the company at that time.

In the case of options granted under the ESOS and allocations granted under the LTIP, such performance targets will be based on total shareholder return measured over a fixed three year period.

In the case of matching options granted under the Loyalty Plan, such performance targets will be based on earnings per sharemeasured over a fixed three year period.

Once options or allocations have been granted, a performance target may not be altered unless an event occurs which causes theboard or, where applicable, the trustee (following consultation with the board) to determine that the performance target hasceased to be appropriate, in which case the performance target may be altered provided that any new performance target is nomore difficult to satisfy (with the prior approval of HMRC in the case of options granted under Part A of the ESOS).

There will be no provisions for retesting any performance target.

Leaving EmploymentNormally, options and allocations lapse on leaving employment. However if a participant ceases employment with any companyin the Group by reason of death, injury, disability, redundancy, retirement, sale of their employing company or business out of theGroup, or (except in relation to the Sharesave Scheme) any other reason as determined by the board or trustee, then the option orallocation will be capable of exercise or satisfaction subject (where applicable) to the achievement of a pro-rated performancetarget, with a pro-rata reduction in the size of the option or allocation to reflect the period of time that the period from the date ofgrant to the date of cessation of employment bears to the period of 36 months (save in relation to the Sharesave Scheme, whereoptions are limited to accrued savings and interest to the date of exercise). Any remainder of the option or allocation will lapse.

Corporate EventsOptions may be exercised and allocations may be satisfied in the event of a takeover, court sanctioned compromise orarrangement resulting in a change of control of the company or winding-up of the company, subject (where applicable) to theachievement of a pro-rated performance target. The number of shares under option that may be exercised or under allocation thatmay be satisfied will be pro-rated to reflect the period of time that the period from the date of grant to the date of the relevantevent bears to the period of 36 months (save in relation to the Sharesave Scheme, where options are limited to accrued savingsand interest to the date of exercise). Any remainder of the option or allocation will lapse.

Variation of Share CapitalIn the event of any variation in the ordinary share capital of the company, the board or trustee (as appropriate) may makeadjustments as they consider appropriate to the number of shares subject to options or allocations and the price at which sharesmay be acquired by the exercise of any option (with the prior approval of HMRC in the case of options granted under Part A of theSharesave Scheme).

Alterations to the Employee Share SchemesThe board or trustee, as appropriate, may at any time amend the Employee Share Schemes, provided that the prior approval ofshareholders is obtained for any amendments to the advantage of participants or potential participants in respect of eligibility, the limits on participation, the overall limits on the issue of shares or the transfer of treasury shares, the basis for determining aparticipant’s entitlement to, and the terms of, shares or cash provided under the Employee Share Schemes and the adjustment of options or allocations.

The requirement to obtain the prior approval of shareholders will not, however, apply to any alteration to take account of achange in legislation or any alteration required to obtain or maintain favourable tax, exchange control or regulatory treatment for participants or for any company in the Group or any minor alteration made to benefit the administration of the EmployeeShare Schemes.

No amendment to any ‘key feature’ (as defined in ITEPA) will be made to Part A of the Sharesave Scheme without prior approval of HMRC.

Extension of the Employee Share Schemes OverseasThe terms of each of the Employee Share Schemes provide the board or trustee, as appropriate, with the power to extend theEmployee Share Schemes to countries outside the UK taking account of local tax, exchange control, or securities laws in therelevant jurisdictions. To do this, it may be necessary either to add schedules to the Employee Share Schemes or to establish otherschemes based on the Employee Share Schemes. The terms of such other schemes will not provide participants with benefitsgreater than those provided under the Employee Share Schemes.

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The Charles Taylor Employees’ Share Ownership Plan Trust (the ‘ESOP’)The ESOP was established by deed on 20 September 1996 and will operate in conjunction with the Employee Share Schemes. The ESOP will not, without prior shareholder approval, make an acquisition of shares where it would then hold more than five percent. of the company’s issued share capital from time to time. The beneficiaries of the ESOP are the employees, former employees(and their respective dependants) from time to time of the Group.

Summary of the principal terms of the Charles Taylor Consulting Executive Share Option Scheme 2007 (the ‘ESOS’)Structure of the ESOSThe ESOS consists of three parts: Part A (an approved part for which approval will be sought from HMRC under Schedule 4 toITEPA), Part B (which allows for the grant of unapproved options) and Part C (which allows for the grant of incentive stock optionsto employees in the US).

Options may be granted by the board or, following a recommendation by the board, the trustee.

Exercise priceThe exercise price will not be less than the market value of shares on the date of grant or (and where permitted in any jurisdiction)the market value on the dealing day before or the average market value on the three dealing days before the date of grant (or atsuch earlier time as the board may agree with HMRC) and where shares are to be subscribed, their nominal value.

Individual limitsIn any calendar year, options will not be granted to an individual over shares with a value greater than 200 per cent. of his basicsalary except in exceptional circumstances.

The aggregate market value of shares with respect to which incentive stock options may be granted to an individual under Part Cof the ESOS shall not exceed US$100,000 in any calendar year, and the limit on approved options under Part A is £30,000.

Exercise of optionsOptions will normally be exercisable, subject to the performance target being satisfied and the participant remaining inemployment, save in certain specified circumstances, from the third anniversary of the date of grant. Special rules apply on acessation of employment and on the occurrence of certain corporate events as detailed above.

Summary of the Principal Terms of the Charles Taylor Consulting Long Term Incentive Plan 2007 (the ‘LTIP’)Structure of the LTIPConditional allocations will be made by the trustee (following consultation with the board), where a participant will receive freeshares in the company automatically following the vesting of an allocation.

Individual LimitThe maximum award to any participant in any financial year under the LTIP will be limited to such number of shares as have an aggregate market value not exceeding 75% of the participant’s basic salary (save in exceptional circumstances).

Vesting of AllocationsAllocations will normally vest on the third anniversary of the date of allocation, subject to the performance target being satisfiedand the participant remaining in employment (save in certain specified circumstances). To the extent that an allocation does notvest it will lapse. The trustee may decide to substitute (either in whole or in part) a cash payment instead of vested shares but, ineach case, with the level of payment calculated on the same basis as a share-based allocation. Special rules apply on a cessation of employment and on the occurrence of certain corporate events as detailed above.

Summary of the Principal Terms of the Charles Taylor Consulting Loyalty Plan 2007 (the ‘Loyalty Plan’)Structure of the Loyalty PlanThe Loyalty Plan is divided into Part A and Part B, as described below.

Part AUnder Part A, selected executive directors and employees may receive their annual bonus in the form of options (a ‘Bonus Option’and a ‘Matching Option’) to acquire shares in the future for no (or a nominal) payment. Up to three shares may be subject to aMatching Option for every ten shares subject to a Bonus Option.

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Exercise of a Bonus OptionWhile a participant under Part A is an employee of the Group, he may exercise his Bonus Option at any time before the tenthanniversary of the grant. If a participant leaves the Group for any reason, he can exercise his Bonus Option within six months of leaving.

Exercise of a Matching OptionWhile a participant under Part A is an employee of the Group, he may only exercise his Matching Option, subject to theperformance target being met, on or after the third anniversary of the Matching Option being granted and before the tenthanniversary of the grant. If the Bonus Option has been partially exercised, the extent to which the Matching Option may beexercised shall be reduced proportionately. Special rules apply on a cessation of employment and on the occurrence of certaincorporate events as detailed above.

Part BPart B enables selected executive directors and employees to invest all or part of their after-tax annual bonus in shares, which aredeposited with the trustee. The board will grant the participant an option to acquire, in the future, up to three matching shares forevery ten shares deposited with the trustee at the date of grant for no (or a nominal) payment (the ‘Matching Option’).

Withdrawal of Ordinary Shares by a ParticipantA participant may withdraw the shares which he has deposited with the trustee (the ‘Bonus Investment Shares’) at any time.However, if he withdraws all of the Bonus Investment Shares within three years of depositing them, he will not be able to exercisethe Matching Option. If he withdraws a proportion of the Bonus Investment Shares, the extent to which the Matching Option maybe exercised shall be reduced proportionately.

Exercise of a Matching OptionWhile a participant under Part B is an employee of the Group, he may only exercise his Matching Option, subject to theperformance target being met, on or after the third anniversary of the Matching Option being granted, and before the tenthanniversary of the grant.

Special rules apply on a cessation of employment and on the occurrence of certain corporate events as detailed above.

Summary of the Principal Terms of the Charles Taylor Consulting Sharesave Scheme 2007 (the ‘Sharesave Scheme’)Structure of the Sharesave SchemeThe Sharesave Scheme consists of three parts: Part A (an approved part for UK employees for which approval is being sought fromHMRC), Part B (an international part) and Part C (an employee stock purchase plan for US employees), as described below.

Part ASavings ContractsAn eligible employee who applies for an option under Part A must also enter into an HMRC approved savings-related contract.Under this contract, the employee will agree to make monthly savings contributions of a fixed amount (currently not less than £5 and not more than £250). Shares may only be acquired on the exercise of the option using the savings under this contract.Payment will be taken as including the interest or bonus contribution payable under the savings contract, unless otherwisedecided by the board.

PriceThe price payable for each share under option shall be determined by the board provided that it shall not be less than 80 per cent.of the market value of the company’s shares.

Exercise of OptionsAn option granted under Part A may not normally be exercised until the option holder has completed his savings contract (whichwill usually be three or five years from the date of taking out the savings contract) and then not more than six months thereafter. In addition to the general rights of exercise described above on the cessation of employment, a participant may also exercise hisoption for any other reason (other than dismissal for misconduct) provided that the cessation of employment occurs more thanthree years after the grant of the option.

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Part BPart B is designed for employees outside the UK and US. The board can determine which subsidiaries’ employees shouldparticipate under Part B and in which territories Part B should be operated.

Grant of OptionsEligible employees may be invited by the board to apply for options under Part B to acquire shares in the company. Employeesapplying for options must agree to make regular monthly savings between £5 and £250 in local currency (at an exchange ratefixed at the outset) under a savings contract approved by the board. It is envisaged that, unless local laws or regulations require ashorter savings period or there are particular tax advantages available for the Group or employees in having a shorter period, theboard will not usually approve a savings contract for a shorter period than the minimum period allowed under Part A from time to time. The funds saved (plus interest) are used by employees to exercise their options. The number of shares comprised in anoption will be calculated according to the savings made and an assumed rate of interest set by the board (which will usuallyequate to the interest rate or, as appropriate, the number of bonus contributions payable under Part A).

Exercise PriceThe exercise price under the options will be determined by the board before the grant of the options. This price, which shall bequoted in sterling, shall not be less than 80 per cent. of the market value of the company’s shares.

Exercise of OptionsIn addition to the general rights of exercise described above on the cessation of employment, a participant may also exercise hisoption for any other reason (other than dismissal for misconduct) provided that the cessation of employment occurs more thanthree years after the grant of the option.

SavingsIn addition to savings made and interest earned, an employee can make ‘top-up’ contributions to take account of adverseexchange rate movements or differences between the actual and assumed rates of interest applying to his savings.

Cash Equivalent and Phantom OptionsFollowing the exercise of an option, the board may decide that, in lieu of a right to receive shares, a participant shall be paid acash sum equivalent to the difference between the market value of the shares at that time and the option price. Where there are legal restrictions on granting options over shares in any jurisdiction, the board may determine that ‘phantom’options may be granted to an individual under Part B over a cash sum calculated by reference to the growth in value of a specifiednumber of shares in the company.

Part CPart C is designed to qualify under section 423 of the US Internal Revenue Code of 1986. Part C will be operated in the US.

SavingsAn eligible employee or director who applies for an option under Part C must agree to savings being deducted from his after-taxpay. Regular deductions are made over a two year period (not more than US$5,000 in any year). Shares may normally only beacquired under Part C on the exercise of the option using the savings together with interest on such savings, although a participantmay supplement his savings from his own funds if, due to exchange rate movements, he cannot purchase the full number ofordinary shares subject to his option.

LimitsTo comply with US tax legislation, the number of shares which may be issued on the exercise of options granted under Part C may not exceed such number as equals ten per cent. of the issued share capital of the company.

The limits on the issue of shares described above will also apply under Part C.

PriceThe price payable for each ordinary share shall be a price in sterling determined by the board provided that it shall not be lessthan 85 per cent. of the market value of the company’s shares on the date of grant.

Exercise of OptionsAn option granted under Part C will normally be exercised 27 months after the date of grant, provided the option holder is still in the employment of the Group. Special provisions apply in the case of death, injury, disability, workforce reduction or jobelimination, retirement under the employing company’s retirement plan or because the company or business which employs theoption holder is transferred out of the Group. Special provisions also allow early exercise in the event of a takeover, reconstructionor winding-up of the company.


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Annual General Meeting4 May 2007

Interim Results Announcement24 September 2007

Final Dividend for 2006Ex-dividend 18 April 2007Record date 20 April 2007Payment due 25 May 2007

Interim Dividend for 2007Ex-dividend 10 October 2007Record date 12 October 2007Payment date 26 November 2007

Financial Diary 2007

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CTC Offices

Further information about CTC can be found on our website at ‘charlestaylorconsulting.com’, or by contacting one of our offices on the telephone numbers listed below.

Telephone No

Head Office London Essex House (+44) 20 7488 3494

Australia Sydney (+61) 2 9252 1599Brisbane (+61) 7 3870 3350Brisbane (+61) 7 3839 9999Perth (+61) 8 9321 2022Perth (+61) 8 9334 0700

Belgium Brussels (+32) 54 319 872

Bermuda Hamilton (+1) 441 292 3103

Canada Calgary (+1) 403 266 3336Halifax (+1) 902 835 7600St. Johns (+1) 709 726 7750Toronto (+1) 416 640 6022

China Hong Kong (+852) 2527 3202Shanghai (+8621) 5835 2756

France Paris (+33) 153 430 030Paris (+33) 153 438 386

Greece Piraeus (+30) 210 429 0733

India Mumbai (+91) 22 2283 5851

Indonesia Jakarta (+62) 21 515 2084Surabaya (+62) 31 354 7281

Ireland Dublin (+353) 85 168 5289

Isle of Man Douglas (+44) 1624 683 683

Japan Tokyo (+81) 3 3255 8640

Korea Busan (+82) 51 441 8636Seoul (+82) 2752 1891

Malaysia Selangor (+603) 7 781 2260

Mexico Mexico City (+5255) 3000 1880

Netherlands Rotterdam (+31) 10 217 1988

Philippines Manila (+63) 2 521 8623

Singapore Singapore (+65) 6221 1060Singapore (+65) 6297 2161

Spain Madrid (+34) 91 417 0080

Taiwan Taipei (+886) 2 2706 6509

United Kingdom Aberdeen (+44) 1339 887 170Bradford (+44) 1274 750 460Glasgow (+44) 141 221 2992Liverpool (+44) 151 227 2175London Cornhill House (+44) 20 7398 5600London International House (+44) 20 7488 3494London Lime Street (+44) 20 7623 1819Marlow (+44) 149 444 4811

UAE Dubai (+971) 4 359 3946

United States Addison, TX (+1) 972 447 2050Covington, LA (+1) 985 809 1170Dallas, TX (+1) 972 770 1480Earth City, MO (+1) 314 739 4526Frederick, MD (+1) 301 694 4215Grand Junction, CO (+1) 970 255 0300Houston, TX (+1) 713 840 1642Long Beach (+1) 562 495 7900Miami, FL (+1) 954 447 9840Milford, OH (+1) 513 722 0727New York, NY (+1) 212 809 8085Orlando, FL (+1) 407 894 1634Prescott, AZ (+1) 928 771 0031Renton, WA (+1) 206 772 9315Ronkonkoma, NY (+1) 631 285 6934Van Nuys, CA (+1) 818 785 3513West Trenton, NJ (+1) 609 538 8502Wilton, CT (+1) 203 761 6060

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